Abstract
This paper quantifies the effects on the productivity of firms' R & D of exogenous variations in the state of technology (technological opportunity) and of the R & D of other firms (spillovers of R & D). The R & D productivity is increased by the R & D of "technological neighbors," though neighbors' R & D lowers the profits and market value of low-R&D-intensity firms. Firms are shown to adjust the technological composition of their R & D in response to technological opportunity.