Working Paper: CEPR ID: DP3293
Authors: David Thesmar; Mathias Thoenig
Abstract: By choosing their organizations, firms trade-off productive efficiency and time spent in implementing innovation. We embed such a productivity/reactivity trade-off in a growth model with creative destruction. We first highlight the specific impact of time in firm competition: in addition to weighing costs and benefits of late adoption, firms use time as a strategic variable through the possibility of overtaking their competitors. Due to this very specificity of time competition, multiple equilibria may emerge: when firms adopt quickly, their stock market valuation is larger, and they innovate more and produce less. Moreover, the IT revolution is shown to favour quick implementation via a general equilibrium feedback on organizational choice.
Keywords: competition; firm organization; innovation; reactivity
JEL Codes: L16; L23; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| speed of innovation implementation (O35) | stock market valuation (G10) |
| organizational structure (mechanistic vs. organistic) (L22) | innovation outcomes (O36) |
| IT revolution (L86) | efficiency of innovation implementation (O35) |
| efficiency of innovation implementation (O35) | firms that can quickly adapt their organizational structures (L22) |
| strategic choices regarding time consumption (D25) | multiple equilibria (D50) |
| time-based competition (C41) | different market outcomes (D43) |