IDEAS home Printed from https://ideas.repec.org/p/fem/femwpa/2010.47.html
   My bibliography  Save this paper

The Circulation of Ideas in Firms and Markets

Author

Listed:
  • Thomas Hellman

    (University of British Columbia)

  • Enrico Perotti

    (University of Amsterdam)

Abstract

Novel early stage ideas face uncertainty on the expertise needed to elaborate them, which creates a need to circulate them widely to find a match. Yet as information is not excludable, shared ideas may be stolen, reducing incentives to innovate. Still, in idea-rich environments inventors may share them without contractual protection. Idea density is enhanced by firms ensuring rewards to inventors, while their legal boundaries limit idea leakage. As firms limit idea circulation, the innovative environment involves a symbiotic interaction: firms incubate ideas and allow employees to leave if they cannot find an internal fit; markets allow for wide circulation of ideas until matched and completed; under certain circumstances ideas may be even developed in both firms and markets.

Suggested Citation

  • Thomas Hellman & Enrico Perotti, 2010. "The Circulation of Ideas in Firms and Markets," Working Papers 2010.47, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2010.47
    as

    Download full text from publisher

    File URL: http://www.feem.it/userfiles/attach/20104151635324NDL2010-047.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Philippe Aghion & Mathias Dewatripont & Jeremy C. Stein, 2008. "Academic freedom, private-sector focus, and the process of innovation," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 617-635.
    3. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters,in: Innovation Policy and the Economy, Volume 2, pages 51-78 National Bureau of Economic Research, Inc.
    4. Walter Novaes & Luigi Zingales, 2004. "Bureaucracy as a Mechanism to Generate Information," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 245-259, Summer.
    5. Satyajit Chatterjee & Esteban Rossi‐Hansberg, 2012. "Spinoffs And The Market For Ideas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 53-93, February.
    6. Mathias Dewatripont & Patrick Bolton, 1994. "The firm as a communication network," ULB Institutional Repository 2013/9595, ULB -- Universite Libre de Bruxelles.
    7. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters,in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87 World Scientific Publishing Co. Pte. Ltd..
    8. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    9. Gans, Joshua S. & Stern, Scott, 2003. "The product market and the market for "ideas": commercialization strategies for technology entrepreneurs," Research Policy, Elsevier, vol. 32(2), pages 333-350, February.
    10. James J. Anton & Dennis A. Yao, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 513-531.
    11. Hellmann, Thomas F & Perotti, Enrico C, 2006. "The Circulation of Ideas: Firms Versus Markets," CEPR Discussion Papers 5469, C.E.P.R. Discussion Papers.
    12. Bruno Biais & Enrico Perotti, 2008. "Entrepreneurs and new ideas," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1105-1125.
    13. Fiona Murray & Philippe Aghion & Mathias Dewatripont & Julian Kolev & Scott Stern, 2016. "Of Mice and Academics: Examining the Effect of Openness on Innovation," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 212-252, February.
    14. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
    15. Justin Pappas Johnson, 2002. "Open Source Software: Private Provision of a Public Good," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 637-662, December.
    16. Carolin Haeussler & Lin Jiang & Jerry Thursby & Marie C. Thursby, 2009. "Specific and General Information Sharing Among Academic Scientists," NBER Working Papers 15315, National Bureau of Economic Research, Inc.
    17. Branstetter, Lee, 2006. "Is foreign direct investment a channel of knowledge spillovers? Evidence from Japan's FDI in the United States," Journal of International Economics, Elsevier, vol. 68(2), pages 325-344, March.
    18. Fernando E. Alvarez & Francisco J. Buera & Robert E. Lucas, Jr., 2008. "Models of Idea Flows," NBER Working Papers 14135, National Bureau of Economic Research, Inc.
    19. Bruno Cassiman & Masako Ueda, 2006. "Optimal Project Rejection and New Firm Start-ups," Management Science, INFORMS, vol. 52(2), pages 262-275, February.
    20. Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 809-839.
    21. Giacinta Cestone & Lucy White, 2003. "Anticompetitive Financial Contracting: The Design of Financial Claims," Journal of Finance, American Finance Association, vol. 58(5), pages 2109-2142, October.
    22. Jasjit Singh, 2005. "Collaborative Networks as Determinants of Knowledge Diffusion Patterns," Management Science, INFORMS, vol. 51(5), pages 756-770, May.
    23. Martin L. Weitzman, 1998. "Recombinant Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 331-360.
    24. Stephan, Paula E., 2010. "The Economics of Science," Handbook of the Economics of Innovation, Elsevier.
    25. Paula E. Stephan, 2010. "The Economics of Science - Funding for Research," ICER Working Papers 12-2010, ICER - International Centre for Economic Research.
    26. David H. Hsu, 2006. "Venture Capitalists and Cooperative Start-up Commercialization Strategy," Management Science, INFORMS, vol. 52(2), pages 204-219, February.
    27. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    28. Bhattacharya, Sudipto & Guriev, Sergei, 2004. "Knowledge Disclosure, Patents and Optimal Organization of Research and Development," CEPR Discussion Papers 4513, C.E.P.R. Discussion Papers.
    29. Mariagiovanna Baccara & Ronny Razin, 2007. "Bargaining Over New Ideas: The Distribution of Rents and the Stability of Innovative Firms," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1095-1129, December.
    30. Liebeskind, Julia Porter, 1997. "Keeping Organizational Secrets: Protective Institutional Mechanisms and Their Costs," Industrial and Corporate Change, Oxford University Press, vol. 6(3), pages 623-663, September.
    31. Matt Marx & Deborah Strumsky & Lee Fleming, 2009. "Mobility, Skills, and the Michigan Non-Compete Experiment," Management Science, INFORMS, vol. 55(6), pages 875-889, June.
    32. Klepper, Steven & Thompson, Peter, 2010. "Disagreements and intra-industry spinoffs," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 526-538, September.
    33. Pierre Azoulay, 2004. "Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development," American Economic Review, American Economic Association, vol. 94(5), pages 1591-1612, December.
    34. Jeremy C. Stein, 2008. "Conversations among Competitors," American Economic Review, American Economic Association, vol. 98(5), pages 2150-2162, December.
    35. James J. Anton & Dennis A. Yao, 2004. "Little Patents and Big Secrets: Managing Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 1-22, Spring.
    36. Peter B. Meyer, 2003. "Episodes of Collective Invention," Working Papers 368, U.S. Bureau of Labor Statistics.
    37. Thomas Hellmann, 2007. "When Do Employees Become Entrepreneurs?," Management Science, INFORMS, vol. 53(6), pages 919-933, June.
    38. Eric S. Chou, 2007. "The boundaries of firms as information barriers," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 733-746, September.
    39. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-253, May.
    40. Elisabeth Kremp & Jacques Mairesse, 2004. "Knowledge Management, Innovation, and Productivity: A Firm Level Exploration Based on French Manufacturing CIS3 Data," NBER Working Papers 10237, National Bureau of Economic Research, Inc.
    41. Baccara, Mariagiovanna & Razin, Ronny, 2004. "Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights," CEPR Discussion Papers 4466, C.E.P.R. Discussion Papers.
    42. James J. Anton & Dennis A. Yao, 2005. "Markets For Partially Contractible Knowledge: Bootstrapping Versus Bundling," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 745-754, 04/05.
    43. Masako Ueda, 2004. "Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation," Journal of Finance, American Finance Association, vol. 59(2), pages 601-621, April.
    44. Bresnahan, Timothy F & Gambardella, Alfonso & Saxenian, AnnaLee, 2001. "'Old Economy' Inputs for 'New Economy' Outcomes: Cluster Formation in the New Silicon Valleys," Industrial and Corporate Change, Oxford University Press, vol. 10(4), pages 835-860, December.
    45. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1185-1209.
    46. Richard Nelson, 1962. "Introduction to "The Rate and Direction of Inventive Activity: Economic and Social Factors"," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 1-16 National Bureau of Economic Research, Inc.
    47. Paul Gompers & Josh Lerner & David Scharfstein, 2005. "Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, 1986 to 1999," Journal of Finance, American Finance Association, vol. 60(2), pages 577-614, April.
    48. Alan Hyde, 1998. "Silicon Valley'S High-Velocity Labor Market," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(2), pages 28-37.
    49. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    50. Agrawal, Ajay & Cockburn, Iain, 2003. "The anchor tenant hypothesis: exploring the role of large, local, R&D-intensive firms in regional innovation systems," International Journal of Industrial Organization, Elsevier, vol. 21(9), pages 1227-1253, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yoichi Nishihara, 2014. "An Anonymous Buyer of Intangible Property," Journal of Industry, Competition and Trade, Springer, vol. 14(4), pages 511-518, December.
    2. Ganglmair, Bernhard & Holcomb, Alex & Myung, Noah, 2016. "Cutthroats or comrades: Information sharing among competing fund managers," MPRA Paper 71506, University Library of Munich, Germany.
    3. Bernhard Ganglmair & Emanuele Tarantino, 2014. "Conversation with secrets," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 273-302, June.
    4. Drivas, Kyriakos & Economidou, Claire & Karamanis, Dimitris & Zank, Arleen, 2014. "Academic Patents and Technology Transfer," MPRA Paper 57476, University Library of Munich, Germany.
    5. Carlino, Gerald & Kerr, William R., 2015. "Agglomeration and Innovation," Handbook of Regional and Urban Economics, Elsevier.
    6. Orman, Cuneyt, 2015. "Organization of innovation and capital markets," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 94-114.
    7. Hellmann, Thomas & Thiele, Veikko, 2015. "Friends or foes? The interrelationship between angel and venture capital markets," Journal of Financial Economics, Elsevier, vol. 115(3), pages 639-653.
    8. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, Elsevier.
    9. Haeussler, Carolin & Jiang, Lin & Thursby, Jerry & Thursby, Marie, 2014. "Specific and general information sharing among competing academic researchers," Research Policy, Elsevier, vol. 43(3), pages 465-475.
    10. Jan Zabojnik, 2016. "Firm Reputation and Employee Startups," Working Papers 1362, Queen's University, Department of Economics.
    11. Dessi, Roberta & Yin, Nina, 2015. "Venture Capital and Knowledge Transfer," TSE Working Papers 15-555, Toulouse School of Economics (TSE).
    12. Colombo, Luca & Dawid, Herbert, 2016. "Complementary assets, start-ups and incentives to innovate," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 177-190.
    13. Akcigit, Ufuk & Grigsby, John & Nicholas, Tom, 2017. "The Rise of American Ingenuity: Innovation and Inventors of the Golden Age," CEPR Discussion Papers 11755, C.E.P.R. Discussion Papers.
    14. Meagher, Kieron & Prasad, Suraj, 2016. "Career concerns and team talent," Journal of Economic Behavior & Organization, Elsevier, vol. 129(C), pages 1-17.
    15. repec:bof:bofrdp:urn:nbn:fi:bof-201512111472 is not listed on IDEAS
    16. repec:bla:stratm:v:38:y:2017:i:11:p:2189-2212 is not listed on IDEAS
    17. repec:eee:respol:v:46:y:2017:i:8:p:1465-1478 is not listed on IDEAS
    18. Drivas, Kyriakos & Fafaliou, Irene & Fampiou, Elpiniki & Yannelis, Demetrius, 2014. "The Effect of Patent Grant on the Geographic Reach of Patent Sales," MPRA Paper 60099, University Library of Munich, Germany.
    19. Nisvan Erkal & Deborah Minehart, 2013. "Optimal Sharing Strategies in Dynamic," Department of Economics - Working Papers Series 1174, The University of Melbourne.
    20. Buhui Qiu & Teng Wang, 2017. "Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets," Finance and Economics Discussion Series 2017-012, Board of Governors of the Federal Reserve System (U.S.).
    21. Gambardella, Alfonso & Giarratana, Marco S., 2013. "General technological capabilities, product market fragmentation, and markets for technology," Research Policy, Elsevier, vol. 42(2), pages 315-325.
    22. repec:eee:jeborg:v:137:y:2017:i:c:p:282-303 is not listed on IDEAS
    23. Stanko, Michael A. & Olleros, Xavier, 2013. "Industry growth and the knowledge spillover regime: Does outsourcing harm innovativeness but help profit?," Journal of Business Research, Elsevier, vol. 66(10), pages 2007-2016.

    More about this item

    Keywords

    Ideas; Innovation; Entrepreneurship; Firm Organization; Start-Ups;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2010.47. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah). General contact details of provider: http://edirc.repec.org/data/feemmit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.