IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/16943.html
   My bibliography  Save this paper

The Circulation of Ideas in Firms and Markets

Author

Listed:
  • Thomas F. Hellmann
  • Enrico C. Perotti

Abstract

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.

Suggested Citation

  • Thomas F. Hellmann & Enrico C. Perotti, 2011. "The Circulation of Ideas in Firms and Markets," NBER Working Papers 16943, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16943
    Note: PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w16943.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Bruce Kogut & Udo Zander, 1992. "Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology," Organization Science, INFORMS, vol. 3(3), pages 383-397, August.
    3. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78, National Bureau of Economic Research, Inc.
    4. Satyajit Chatterjee & Esteban Rossi‐Hansberg, 2012. "Spinoffs And The Market For Ideas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 53-93, February.
    5. Josh Lerner & Jean Tirole, 2002. "Some Simple Economics of Open Source," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
    6. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87, World Scientific Publishing Co. Pte. Ltd..
    7. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    8. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 805-851.
    9. Fiona Murray & Philippe Aghion & Mathias Dewatripont & Julian Kolev & Scott Stern, 2016. "Of Mice and Academics: Examining the Effect of Openness on Innovation," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 212-252, February.
    10. Masako Ueda, 2000. "Bank versus venture capital," Economics Working Papers 522, Department of Economics and Business, Universitat Pompeu Fabra.
    11. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    12. Justin Pappas Johnson, 2002. "Open Source Software: Private Provision of a Public Good," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 637-662, December.
    13. Carolin Haeussler & Lin Jiang & Jerry Thursby & Marie C. Thursby, 2009. "Specific and General Information Sharing Among Academic Scientists," NBER Working Papers 15315, National Bureau of Economic Research, Inc.
    14. Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 809-839.
    15. Fernando E. Alvarez & Francisco J. Buera & Robert E. Lucas, Jr., 2008. "Models of Idea Flows," NBER Working Papers 14135, National Bureau of Economic Research, Inc.
    16. Bruno Cassiman & Masako Ueda, 2006. "Optimal Project Rejection and New Firm Start-ups," Management Science, INFORMS, vol. 52(2), pages 262-275, February.
    17. Philippe Aghion & Mathias Dewatripont & Jeremy C. Stein, 2008. "Academic freedom, private‐sector focus, and the process of innovation," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 617-635, September.
    18. Giacinta Cestone & Lucy White, "undated". "Anti-Competitive Financial Contracting: The Design Of Financial Claims," UFAE and IAE Working Papers 453.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    19. Martin L. Weitzman, 1998. "Recombinant Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 331-360.
    20. Paula E. Stephan, 2010. "The Economics of Science - Funding for Research," ICER Working Papers 12-2010, ICER - International Centre for Economic Research.
    21. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    22. Mariagiovanna Baccara & Ronny Razin, 2007. "Bargaining Over New Ideas: The Distribution of Rents and the Stability of Innovative Firms," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1095-1129, December.
    23. Liebeskind, Julia Porter, 1997. "Keeping Organizational Secrets: Protective Institutional Mechanisms and Their Costs," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 6(3), pages 623-663, September.
    24. Stephan, Paula E., 2010. "The Economics of Science," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 217-273, Elsevier.
    25. Thomas Hellmann & Enrico Perotti, 2011. "The Circulation of Ideas in Firms and Markets," Management Science, INFORMS, vol. 57(10), pages 1813-1826, October.
    26. Pierre Azoulay, 2004. "Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development," American Economic Review, American Economic Association, vol. 94(5), pages 1591-1612, December.
    27. Jeremy C. Stein, 2008. "Conversations among Competitors," American Economic Review, American Economic Association, vol. 98(5), pages 2150-2162, December.
    28. Peter B. Meyer, 2003. "Episodes of Collective Invention," Working Papers 368, U.S. Bureau of Labor Statistics.
    29. Bhattacharya, Sudipto & Guriev, Sergei, 2004. "Knowledge disclosure, patents and optimal organization of research and development," LSE Research Online Documents on Economics 19315, London School of Economics and Political Science, LSE Library.
    30. Elisabeth Kremp & Jacques Mairesse, 2004. "Knowledge Management, Innovation, and Productivity: A Firm Level Exploration Based on French Manufacturing CIS3 Data," NBER Working Papers 10237, National Bureau of Economic Research, Inc.
    31. Razin, Ronny & Baccara, Mariagiovanna, 2004. "Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights," CEPR Discussion Papers 4466, C.E.P.R. Discussion Papers.
    32. repec:bla:jfinan:v:59:y:2004:i:2:p:601-621 is not listed on IDEAS
    33. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1185-1209.
    34. Branstetter, Lee, 2006. "Is foreign direct investment a channel of knowledge spillovers? Evidence from Japan's FDI in the United States," Journal of International Economics, Elsevier, vol. 68(2), pages 325-344, March.
    35. Paul Gompers & Josh Lerner & David Scharfstein, 2005. "Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, 1986 to 1999," Journal of Finance, American Finance Association, vol. 60(2), pages 577-614, April.
    36. Alan Hyde, 1998. "Silicon Valley'S High‐Velocity Labor Market," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(2), pages 28-37, June.
    37. Walter Novaes & Luigi Zingales, 2004. "Bureaucracy as a Mechanism to Generate Information," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 245-259, Summer.
    38. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    39. Thomas Hellmann, 2007. "When Do Employees Become Entrepreneurs?," Management Science, INFORMS, vol. 53(6), pages 919-933, June.
    40. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    41. Gans, Joshua S. & Stern, Scott, 2003. "The product market and the market for "ideas": commercialization strategies for technology entrepreneurs," Research Policy, Elsevier, vol. 32(2), pages 333-350, February.
    42. James J. Anton & Dennis A. Yao, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(3), pages 513-531.
    43. Perotti, Enrico & Hellmann, Thomas F, 2006. "The Circulation of Ideas: Firms Versus Markets," CEPR Discussion Papers 5469, C.E.P.R. Discussion Papers.
    44. Bruno Biais & Enrico Perotti, 2008. "Entrepreneurs and new ideas," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1105-1125, December.
    45. Jasjit Singh, 2005. "Collaborative Networks as Determinants of Knowledge Diffusion Patterns," Management Science, INFORMS, vol. 51(5), pages 756-770, May.
    46. David H. Hsu, 2006. "Venture Capitalists and Cooperative Start-up Commercialization Strategy," Management Science, INFORMS, vol. 52(2), pages 204-219, February.
    47. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
    48. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    49. Matt Marx & Deborah Strumsky & Lee Fleming, 2009. "Mobility, Skills, and the Michigan Non-Compete Experiment," Management Science, INFORMS, vol. 55(6), pages 875-889, June.
    50. Klepper, Steven & Thompson, Peter, 2010. "Disagreements and intra-industry spinoffs," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 526-538, September.
    51. James J. Anton & Dennis A. Yao, 2004. "Little Patents and Big Secrets: Managing Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 1-22, Spring.
    52. Eric S. Chou, 2007. "The boundaries of firms as information barriers," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 733-746, September.
    53. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-253, May.
    54. James J. Anton & Dennis A. Yao, 2005. "Markets For Partially Contractible Knowledge: Bootstrapping Versus Bundling," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 745-754, 04/05.
    55. Bresnahan, Timothy F & Gambardella, Alfonso & Saxenian, AnnaLee, 2001. "'Old Economy' Inputs for 'New Economy' Outcomes: Cluster Formation in the New Silicon Valleys," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 10(4), pages 835-860, December.
    56. Richard Nelson, 1962. "Introduction to "The Rate and Direction of Inventive Activity: Economic and Social Factors"," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 1-16, National Bureau of Economic Research, Inc.
    57. Agrawal, Ajay & Cockburn, Iain, 2003. "The anchor tenant hypothesis: exploring the role of large, local, R&D-intensive firms in regional innovation systems," International Journal of Industrial Organization, Elsevier, vol. 21(9), pages 1227-1253, November.
    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. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    2. Boudreau, Kevin J. & Lakhani, Karim R., 2015. "“Open” disclosure of innovations, incentives and follow-on reuse: Theory on processes of cumulative innovation and a field experiment in computational biology," Research Policy, Elsevier, vol. 44(1), pages 4-19.
    3. Colombo, Luca & Dawid, Herbert, 2016. "Complementary assets, start-ups and incentives to innovate," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 177-190.
    4. Hong Luo, 2014. "When to Sell Your Idea: Theory and Evidence from the Movie Industry," Management Science, INFORMS, vol. 60(12), pages 3067-3086, December.
    5. Andres Almazan & Javier Suarez & Sheridan Titman, 2009. "Firms' Stakeholders and the Costs of Transparency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 871-900, September.
    6. Sudipto Bhattacharya & Sergei Guriev, 2006. "Patents vs. Trade Secrets: Knowledge Licensing and Spillover," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1112-1147, December.
    7. James Bessen, 2010. "Communicating Technical Knowledge," Working Papers 1001, Research on Innovation.
    8. Giacomo A. M. Ponzetto, 2008. "Intellectual property rights and efficient firm organization," Economics Working Papers 1254, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2014.
    9. Alfonso Gambardella & Martin Ganco & Florence Honoré, 2015. "Using What You Know: Patented Knowledge in Incumbent Firms and Employee Entrepreneurship," Organization Science, INFORMS, vol. 26(2), pages 456-474, April.
    10. Thomas Hellmann, 2007. "When Do Employees Become Entrepreneurs?," Management Science, INFORMS, vol. 53(6), pages 919-933, June.
    11. Carlino, Gerald & Kerr, William R., 2015. "Agglomeration and Innovation," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 349-404, Elsevier.
    12. Carlos J. Serrano & Rosemarie Ziedonis, 2018. "How Redeployable are Patent Assets? Evidence from Failed Startups," NBER Working Papers 24526, National Bureau of Economic Research, Inc.
    13. Michel A. Habib & Ulrich Hege & Pierre Mella-Barral, 2013. "Entrepreneurial Spawning and Firm Characteristics," Management Science, INFORMS, vol. 59(12), pages 2790-2804, December.
    14. Marco Corsino & Paola Giuri & Salvatore Torrisi, 2019. "Technology spin-offs: teamwork, autonomy, and the exploitation of business opportunities," The Journal of Technology Transfer, Springer, vol. 44(5), pages 1603-1637, October.
    15. Yeganegi, Sepideh & Laplume, André O. & Dass, Parshotam & Huynh, Cam-Loi, 2016. "Where do spinouts come from? The role of technology relatedness and institutional context," Research Policy, Elsevier, vol. 45(5), pages 1103-1112.
    16. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 315-380, Elsevier.
    17. Chila, Vilma & Devarakonda, Shivaram, 2024. "The effects of firm-specific incentives (stock options) on mobility and employee entrepreneurship," Journal of Business Venturing, Elsevier, vol. 39(3).
    18. Jean-Etienne de Bettignies, 2008. "Financing the Entrepreneurial Venture," Management Science, INFORMS, vol. 54(1), pages 151-166, January.
    19. Aloña Martiarena, 2012. "Mobility of Skills and Ideas," DRUID Working Papers 12-04, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    20. Haeussler, Carolin & Jiang, Lin & Thursby, Jerry & Thursby, Marie, 2014. "Specific and general information sharing among competing academic researchers," Research Policy, Elsevier, vol. 43(3), pages 465-475.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    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:nbr:nberwo:16943. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.