Microfoundations of Absorptive Capacity as Revealed by Inventor Deaths

We return to the theoretical foundations of absorptive capacity and test the idea that personal experience in a field makes it easier for a firm’s inventors to recognize and build upon knowledge in that field from other local firms. We propose a new empirical model of localized knowledge diffusion, which (1) measures a firm’s absorptive capacity by its inventors’ prior experience in a field, (2) uses a death instrument to exogenously vary the availability of knowledge of the same collaborative patent in different regions, and (3) estimates the difference in citation likelihood from all subsequent inventors across both regions as a function of a potentially citing inventor’s prior experience in the field. Consistent with the original theory of absorptive capacity, firms whose inventors have prior experience in a field are more likely to use locally available interpersonal knowledge from other firms; furthermore, this effect declines monotonically with distance. Although the effects strengthen for more recent experience and multidisciplinary knowledge, the greatest benefits accrue to firms in the interaction—those whose inventors have more recent experience and that seek to absorb multidisciplinary knowledge. Interpersonal absorptive capacity within firms does not appear to localize. This paper was accepted by Anita McGahan, business strategy. Funding: The authors acknowledge financial support from the Alfred P. Sloan Foundation and the National Science Foundation [Grant 1360228]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.06147 .