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Knowledge-based Hierarchies: Using Organizations to Understand the Economy

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  • Luis Garicano
  • Esteban Rossi-Hansberg

Abstract

We argue that incorporating the decision of how to organize the acquisition, use, and communication of knowledge into economic models is essential to understand a wide variety of economic phenomena. We survey the literature that has used knowledge-based hierarchies to study issues like the evolution of wage inequality, the growth and productivity of firms, economic development, the gains from international trade, as well as offshoring and the formation of international production teams, among many others. We also review the nascent empirical literature that has, so far, confirmed the importance of organizational decisions and many of its more salient implications.

Suggested Citation

  • Luis Garicano & Esteban Rossi-Hansberg, 2014. "Knowledge-based Hierarchies: Using Organizations to Understand the Economy," CEP Occasional Papers 43, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepops:43
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    More about this item

    Keywords

    Knowledge; hierarchies; wage inequality; international trade;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F6 - International Economics - - Economic Impacts of Globalization
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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