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Sources of economic renewal: from the traditional firm to the knowledge firm


  • Rodriguez-Palenzuela, Diego


We build on the imperfection of intellectual property rights as the central motivation for the organization of firms. There are several characteristics specific to a theory of the firm grounded on the absence of intellectual property rights: monetary incentive schemes arise naturally as a element of the organization and strategy of the firm, since profits are verifiable; firm's boundaries and the degree of centralization respond to the same economic principle; the sunk cost of physical assets plays a role of 'anchoring' non-patentable knowledge inside the firm, improving the appropriability of intellectual capital. Moreover, the model implies that 'small' changes in primitives (particularly small reductions in entry costs) may have drastic implications in organizations, inducing firms to shift from a strategy of building up physical capital, which improves appropriability, to a strategy of reliance on employee 'empowerment' (under which employees combine equity holding with being fully informed). The former strategy is characterized instead by flat wages and by employees' restricted access to the intellectual capital of the firm. The model may shed light in the theoretical explanation of observed industrial restructuring. JEL Classification: C70, D23, D43, D82, L11, L22, O31

Suggested Citation

  • Rodriguez-Palenzuela, Diego, 2001. "Sources of economic renewal: from the traditional firm to the knowledge firm," Working Paper Series 0043, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20010043

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    References listed on IDEAS

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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • 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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