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Smithian Growth through Creative Organization

Author

Listed:
  • Patrick Legros

    (ECARES and CEPR)

  • Andrew F. Newman

    (Boston University and CEPR)

  • Eugenio Proto

    (University of Warwick)

Abstract

We model technological progress as an external effect of organizational design, focusing on how factories, based on labor division, could spawn the Industrial Revolution. Dividing labor, as Adam Smith argued, facilitates invention by observers of production processes. However, entrepreneurs cannot internalize this benefit and choose labor division to facilitate monitoring. Equilibrium with few entrepreneurs features low wage shares, and high specialization, but a limited market for innovations. Conversely, with many entrepreneurs, there is a large market for innovation but little specialization because of high wage shares. Technological progress therefore occurs with a moderate scarcity of entrepreneurs. Institutional improvements affect growth ambiguously.

Suggested Citation

  • Patrick Legros & Andrew F. Newman & Eugenio Proto, 2014. "Smithian Growth through Creative Organization," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 796-811, December.
  • Handle: RePEc:tpr:restat:v:96:y:2014:i:5:p:796-811
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:deveco:v:133:y:2018:i:c:p:187-200 is not listed on IDEAS
    2. Orman, Cuneyt, 2015. "Organization of innovation and capital markets," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 94-114.
    3. Aghion, Philippe & Dewatripont, Mathias & Legros, Patrick & Zingales, Luigi (ed.), 2016. "The Impact of Incomplete Contracts on Economics," OUP Catalogue, Oxford University Press, number 9780199826216.
    4. Garicano, Luis & Rossi-Hansberg, Esteban, 2012. "Organizing growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 623-656.
    5. Inci, Eren, 2013. "Occupational choice and the quality of entrepreneurs," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 1-21.
    6. Andrew F. Newman & Patrick Legros, 2011. "Incomplete Contracts and Industrial Organization: A Survey," Boston University - Department of Economics - Working Papers Series WP2011-036, Boston University - Department of Economics.
    7. Stephen L. Parente & Klaus Desmet, 2008. "The Evolution of Markets and the Revolution of Industry," 2008 Meeting Papers 688, Society for Economic Dynamics.
    8. Shingo Ishiguro, 2007. "Organizational Dynamics," Discussion Papers in Economics and Business 07-14, Osaka University, Graduate School of Economics.
    9. repec:eee:eecrev:v:111:y:2019:i:c:p:421-442 is not listed on IDEAS

    More about this item

    Keywords

    labor division; entrepreneurship; industrialization;

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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