# New ideas need new space

## Author Info

• Diego Rodríguez
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## Abstract

We develop a setting with weak intellectual property rights, where firms' boundaries, location and knowledge spillovers are endogenous. We have two main results. The first one is that, if communication costs increase with distance, entrepreneurs concerned about information leakage have a benefit from locating away from the industry center: distance is an obstacle to collusive trades between members and non-members. The second result is that we identify a trade-off for the entrepreneur between owning a facility (controlling all its characteristics) and sharing a facility with a {\it non-member} (an agent not involved in production), therefore losing control over some of its characteristics. We focus on location" as the relevant characteristic of the facility, but location can be used as a spatial metaphor for other relevant characteristics of the facility. For the entrepreneur, sharing the facility with non-members implies that the latter, as co-owners, know the location (even if they do not have access to it). Knowledge of the location for the co-owners facilitates collusion with employees, what increases leakage. The model yields a benefit for new plants from spatial dispersion (locating at the periphery of the industry), particularly so for new plants of new firms. We relate this result with recent empirical findings on the dynamics of industry location.

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## Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 390.

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Handle: RePEc:upf:upfgen:390

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Web page: http://www.econ.upf.edu/

## Related research

Keywords: Intellectual property rights; employee hold-up; secrecy; location; endogenous spillovers;

Find related papers by JEL classification:

• D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
• J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
• J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
• L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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## Citations

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Cited by:
1. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm As A Dedicated Hierarchy: A Theory Of The Origins And Growth Of Firms," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 805-851, August.

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