Working Paper: NBER ID: w9121
Authors: Diego Puga; Daniel Trefler
Abstract: The incremental innovations that underly much of modern economic growth typically involve changes to one or more components of a complex product. This creates a tension. On the one hand, a principal would like an agent to contribute innovative components. On the other hand, ironing out incompatibilities between interdependent components can be a drain on the principal's energies. The principal can conserve her energies by tightly controlling the innovation process, but this may inadvertently stifle the agent's incentive to innovate. We show precisely how this tension between creating knowledge and controlling knowledge shapes organizational forms. The novel concepts introduced are illustrated with case studies of the flat panel cathode ray tube industry and Boeing's recent location decisions.
Keywords: knowledge creation; organizational forms; innovation; incremental innovation
JEL Codes: O31; L22; D23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased control (E61) | decreased innovation incentives (O31) |
| imperfect substitutability of innovative efforts (O36) | control of innovation process (O36) |
| contractual incompleteness (D86) | uncertainty in organizational decision-making (D80) |
| control dynamics (C69) | knowledge creation outcomes (O36) |