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Knowledge creation and control in organizations

  • Diego Puga
  • Daniel Trefler

The incremental innovations that underly 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 betweencreating knowledge and controlling knowledge shapes organizational forms.The novel concepts introduced are illustrated with case studies of the flatpanel cathode ray tube industry and Boeing's recent location decisions.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number dpuga-02-01.

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Length: pages
Date of creation: 11 Aug 2002
Date of revision:
Handle: RePEc:tor:tecipa:dpuga-02-01
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  1. Helper, Susan & MacDuffie, John Paul & Sabel, Charles, 2000. "Pragmatic Collaborations: Advancing Knowledge While Controlling Opportunism," Industrial and Corporate Change, Oxford University Press, vol. 9(3), pages 443-87, September.
  2. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Patrick Legros & Andrew Newman, 2008. "Competing for ownership," ULB Institutional Repository 2013/7020, ULB -- Universite Libre de Bruxelles.
  4. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  5. Marin, Dalia & Verdier, Thierry, 2008. "Power inside the firm and the market: A general equilibrium approach," Munich Reprints in Economics 19255, University of Munich, Department of Economics.
  6. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
  7. Gilles Duranton & Diego Puga, 2001. "Nursery Cities: Urban Diversity, Process Innovation, and the Life Cycle of Products," American Economic Review, American Economic Association, vol. 91(5), pages 1454-1477, December.
  8. Anderlini, L. & Felli, L., 1993. "Incomplete Written Contracts: Undescribable States of Nature," Papers 183, Cambridge - Risk, Information & Quantity Signals.
  9. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 783-832.
  10. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  11. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
  12. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  13. repec:clu:wpaper:1996_21 is not listed on IDEAS
  14. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1988. "Appropriating the Returns from Industrial R&D," Cowles Foundation Discussion Papers 862, Cowles Foundation for Research in Economics, Yale University.
  15. Helsley, Robert W. & Strange, William C., 2002. "Innovation and Input Sharing," Journal of Urban Economics, Elsevier, vol. 51(1), pages 25-45, January.
  16. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
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