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Employee Spinoffs and the Choice of Technology

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Author Info

  • Peter Thompson

    ()
    (Department of Economics, Florida International University)

  • Jing Chen

    ()
    (Department of Economics, Florida International University)

Abstract

Most existing models of employee spinoffs assume they are driven by a desire to implement new ideas. However, history is replete with examples of spinoffs that were launched to continue with old ideas that their parents were in the process of abandoning. We develop a model of technology choice in which spinoffs may form to implement new or old technologies. A team of managers engaged in production using technology x, is considering switching to technology y. The value of y is not known and disagreements may emerge among team members. Managers who develop sufficiently strong disagreements with their colleagues choose to form new companies to implement their preferred strategy. Two distinct classes of spinoffs arise. A type 1 spinoff forms when an employee comes to believe it is worth adopting y but the firm does not. A type 2 spinoff arises when an employee sufficiently disagrees with the firm’s decision to adopt y that he is willing to invest in order to continue with x. We explore the implications of the model for the comparative dynamics of spinoff formation, and the performance of firms.

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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 1001.

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Length: 36 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:fiu:wpaper:1001

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Keywords: Spinoffs; learning; disagreement; choice of technology.;

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