DEC I INNOVATION AND DIFFUSION I033 what we consider the major achievements and shortcomings of the current models of innovation diffusion. Third, we shall present what we call a 'self organisation' model of innovation diffusion, that is, a model whereby relativel ordered paths of change emerge as the(partly)unintentional outcome of the dynamic interactions between individual agents and the changing charac- teristics of the technology. Fourth, the main properties and simulation results of the model will be discussed . CHARACTERISTICS OF TECHNOLOGY AND DYNAMIC INDUSTRIAL ENVIRONMENTS A renewed interest in the economics of innovation over the last two decades has brought considerable progress in the empirical description and theoretical conceptualisation of the sources, characteristics, directions and effects of technical change. We review these topics in Dosi(1988). Here, it suffices to summarise some of the major findings directly relevant to the diffusion of nnovations concerning the nature of technology and the characteristics of firms and innovative environments a) Technology-far from being a free good-is characterised by degrees of appropriability, of uncertainty about the technical and, a fortiori commercial outcomes of innovative efforts, of opportunity for achieving technical advance, of cumulativeness in the patterns of innovation and exploitation of technological know-how and hardware, and of tacitness of the knowledge and expertise on which innovative activities are based. Particular search and learning processes draw on technology-specific knowledge bases, related to both freely available information(e.g. scientific results)and more ' and tacit skills, experience and problem-solving heuristics embodied in people and organisations b)Technologies develop along relatively ordered paths(or 'trajec ctories”) shaped by specific technical properties, search rules, 'technical imperatives and cumulative expertise embodied in each"technological paradigm'(cf.Dosi ( 1984); for similar arguments see Nelson and Winter(1977), Sahal(198 1985), Arthur (1985), Metcalfe (1985)and within somewhat different perspectives, Atkinson and Stiglitz (196g )and David(1975)). Relatedly, Winter(I984)defines different 'technological regimes,accor to whether the knowledge base underpinning innovative search is prim Universal, and thus external to individual firms, or, alternatively, is primarily"localand firm-specific (c) As a consequence of(a) and(b), diversity between firms is a fundamental and permanent characteristic of industrial environments undergoing technical change(see also Metcalfe( 1985)on this point). Inter-firm diversity(even within an industry) can fall into three major categories First, there are technological gaps related to different technological capabilities to innovate, different degrees of success in adopting and efficiently using product and process innovations developed elsewhere, and different costs