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Knowledge Creation and Control in Organizations

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  • Puga, Diego
  • Trefler, Daniel

Abstract

The incremental innovations that underlie 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 between creating knowledge and controlling knowledge shapes organizational forms. The novel concepts introduced are illustrated with case studies of the flat panel cathode ray tube industry and Boeing's recent location decisions.

Suggested Citation

  • Puga, Diego & Trefler, Daniel, 2002. "Knowledge Creation and Control in Organizations," CEPR Discussion Papers 3516, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3516
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, June.
    2. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
    3. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, May.
    4. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    5. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 729-761.
    6. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market," Discussion Papers in Economics 10, University of Munich, Department of Economics.
    7. Diego Puga & Daniel Trefler, 2005. "Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries," NBER Working Papers 11571, National Bureau of Economic Research, Inc.
    8. Petroulas, Pavlos, 2007. "The effect of the euro on foreign direct investment," European Economic Review, Elsevier, vol. 51(6), pages 1468-1491, August.
    9. Valeria Gattai, 2006. "From the Theory of the Firm to FDI and Internalisation: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 225-262, November.
    10. Carlos e Silva & Geoffrey Hewings, 2012. "Locational and managerial decisions as interdependent choices in the headquarter-manufacturing plant relationship: a theoretical approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(3), pages 703-717, June.
    11. Fabrice Defever, "undated". "Incomplete Contracts and the Impact of Globalization on Consumer Welfare," Discussion Papers 11/08, University of Nottingham, GEP.
    12. Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.
    13. Li, Ben & Lu, Yi, 2009. "Geographic concentration and vertical disintegration: Evidence from China," Journal of Urban Economics, Elsevier, vol. 65(3), pages 294-304, May.
    14. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
    15. Du, Julan & Lu, Yi & Tao, Zhigang, 2009. "Bi-sourcing in the global economy," Journal of International Economics, Elsevier, vol. 77(2), pages 215-222, April.
    16. Motta, Massimo & Rønde, Thomas, 2002. "Trade Secret Laws, Labour Mobility and Innovations," CEPR Discussion Papers 3615, C.E.P.R. Discussion Papers.
    17. Maria De Paola & Vincenzo Scoppa, 2009. "Task assignment, incentives and technological factors," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 43-55.

    More about this item

    Keywords

    appropriability; imperfect substitutability; incomplete contracts; incremental innovation;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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