IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v12y1989i3p305-327.html
   My bibliography  Save this article

Agency costs and innovation

Author

Listed:
  • Holmstrom, Bengt

Abstract

Stylized facts indicate that small firms are responsible for a disproportionate share of innovative research. There are many possible explanations for this facto The paper seeks to understand this phenomena as the outcome of an optimal assignment of tasks across individuals and organizations. It is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes. Mixing, hard to measure activities (innovation) with easy to measure activities (routine) is particularly costly, since it will either lead to misallocation of attention across tasks or to misallocation of risk. Larger firms are at a comparative disadvantage in conducting highly innovative research, because of the costs associated with managing a heterogeneous set of tasks. It is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets, both of which are hostile to innovation.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
    • Handle: RePEc:eee:jeborg:v:12:y:1989:i:3:p:305-327
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0167-2681(89)90025-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
    3. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    6. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    2. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    3. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    4. Eitan Goldman & Gary Gorton, 2000. "The Visible Hand, the Invisible Hand and Efficiency," NBER Working Papers 7587, National Bureau of Economic Research, Inc.
    5. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    6. Mathias Dewatripont & Patrick Legros, 2005. "Public-private partnerships: contract design and risk transfer," ULB Institutional Repository 2013/175947, ULB -- Universite Libre de Bruxelles.
    7. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, September.
    8. Jeffery Carpenter & Samuel Bowles & Herbert Gintis, 2006. "Mutual Monitoring in Teams: Theory and Experimental Evidence on the Importance of Reciprocity," Middlebury College Working Paper Series 0608, Middlebury College, Department of Economics.
    9. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    10. Alexis H. Kunz & Thomas Pfeiffer, 2001. "Kapitalmarktorientierte Unternehmenspublizität und der Informationsverbund zwischen in- und externem Rechnungswesen," Schmalenbach Journal of Business Research, Springer, vol. 53(5), pages 500-530, August.
    11. Nadav Levy, 2003. "The Boundary of the Firm in a Model of Trade Within a Hierarchy," Discussion Papers 03-13, University at Albany, SUNY, Department of Economics.
    12. Habib, Michel A. & Mella-Barral, Pierre, 2013. "Skills, core capabilities, and the choice between merging, allying, and trading assets," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 31-48.
    13. Eva M Meyersson Milgrom & Paul Milgrom & Ravi Singh, 2023. "When Should Control Be Shared?," Management Science, INFORMS, vol. 69(1), pages 404-418, January.
    14. Altomonte, Carlo & Rungi, Armando, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Economy and Society 148920, Fondazione Eni Enrico Mattei (FEEM).
    15. Patrick HERBST & Jens PRUFER, 2016. "Firms, Nonprofits, And Cooperatives: A Theory Of Organizational Choice," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 87(3), pages 315-343, December.
    16. Cyert, Richard M. & Kumar, Praveen, 1996. "Economizing by firms through learning and adaptation," Journal of Economic Behavior & Organization, Elsevier, vol. 29(2), pages 211-231, March.
    17. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    18. Christian Ruzzier & Ricard Gil, 2015. "’Make or Buy’ as Competitive Strategy: Evidence from the Spanish Local TV Industry," Working Papers 119, Universidad de San Andres, Departamento de Economia, revised Feb 2015.
    19. Ricard Gil & Christian A. Ruzzier, 2018. "The Impact of Competition on “Make-or-Buy” Decisions: Evidence from the Spanish Local TV Industry," Management Science, INFORMS, vol. 64(3), pages 1121-1135, March.
    20. Pei, Di, 2010. "Incomplete Contracts: Foundations and Applications," MPRA Paper 23650, University Library of Munich, Germany, revised 10 Jun 2010.
    21. Schmidt, Klaus, 2017. "The 2016 Nobel Memorial Prize in Contract Theory," Rationality and Competition Discussion Paper Series 19, CRC TRR 190 Rationality and Competition.

    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

    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:eee:jeborg:v:12:y:1989:i:3:p:305-327. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.