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Knowledge creation and control in organizations

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  • 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 betweencreating knowledge and controlling knowledge shapes organizational forms.The novel concepts introduced are illustrated with case studies of the flatpanel cathode ray tube industry and Boeing's recent location decisions.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number dpuga-02-01.

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Length: pages
Date of creation: 11 Aug 2002
Date of revision:
Handle: RePEc:tor:tecipa:dpuga-02-01

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Keywords: incremental innovation; incomplete contracts; imperfect substitutability; appropriability; control;

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  1. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
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  12. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1988. "Appropriating the Returns from Industrial R&D," Cowles Foundation Discussion Papers 862, Cowles Foundation for Research in Economics, Yale University.
  13. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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