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Discussion Paper Details

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Title: Knowledge Creation and Control in Organizations

Author(s): Diego Puga and Daniel Trefler

Publication Date: August 2002

Keyword(s): appropriability, imperfect substitutability, incomplete contracts and incremental innovation

Programme Area(s): Industrial Organization

Abstract: The incremental innovations that underlie 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 between creating knowledge and controlling knowledge shapes organizational forms. The novel concepts introduced are illustrated with case studies of the flat panel cathode ray tube industry and Boeing's recent location decisions.

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Bibliographic Reference

Puga, D and Trefler, D. 2002. 'Knowledge Creation and Control in Organizations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3516