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The Circulation of Ideas in Firms and Markets

  • Thomas F. Hellmann
  • Enrico C. Perotti

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 leave if they cannot find an internal fit; markets allow for wide ideas circulation of ideas until matched and completed; under certain circumstances ideas may be even developed in both firms and markets.

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File URL: http://www.nber.org/papers/w16943.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16943.

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Date of creation: Apr 2011
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Publication status: published as Thomas Hellmann & Enrico Perotti, 2011. "The Circulation of Ideas in Firms and Markets," Management Science, INFORMS, vol. 57(10), pages 1813-1826, October.
Handle: RePEc:nbr:nberwo:16943
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