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The emergence of a new economy: An O-Ring approach

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  • Fabel, Oliver

Abstract

The O-Ring theory provides a framework for analyzing the effects of team production on the emergence of firms in the New Economy. Given risk-aversion of the potential team members, the productive advantage of perfect ability matching in teams suffices to establish an equilibrium which separates Old and New Economy. In particular, it is not necessary to assume that firms in the New Economy possess exclusive access to a superior production technology. It must only be true that individual abilities can be observed in partnerships which self-manage production and consequently distribute the surplus among the team members. At the same time, abilities remain private information of the employees in managed firms organized on behalf of a profit-maximizing residual claimant.

Suggested Citation

  • Fabel, Oliver, 2001. "The emergence of a new economy: An O-Ring approach," Discussion Papers, Series I 314, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:314
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    References listed on IDEAS

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    1. MartinNeil Baily & Robert Z. Lawrence, 2001. "Do We Have a New E-conomy?," American Economic Review, American Economic Association, vol. 91(2), pages 308-312, May.
    2. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    3. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
    4. Raghuram G. Rajan & Luigi Zingales, 1998. "The Governance of the New Enterprise," CRSP working papers 487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    5. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 121-144, Spring.
    6. Clifford G. Holderness & Randall S. Kroszner & Dennis P. Sheehan, 1999. "Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression," Journal of Finance, American Finance Association, vol. 54(2), pages 435-469, April.
    7. Oliver Fabel & Erik Lehmann, 2002. "Adverse Selection and Market Substitution by Electronic Trade," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(2), pages 175-193.
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    2. Audretsch, David & Lehmann, Erik E & Warning, Susanne, 2003. "University Spillovers: Strategic Location and New Firm Performance," CEPR Discussion Papers 3837, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    New Economy; O-Ring theory; ability matching; partnership firms;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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