NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Organization and Inequality in a Knowledge Economy

Luis Garicano, Esteban Rossi-Hansberg

NBER Working Paper No. 11458
Issued in July 2005
NBER Program(s):   EFG

We present a theory of the organization of work in an economy where knowledge is an essential input in production: a knowledge economy. In this economy a continuum of agents with heterogeneous skills must choose how much knowledge to acquire and may produce on their own or in organizations. Our theory generates an assignment of workers to positions, a wage structure, and a continuum of knowledge-based hierarchies. Organization allows low skill agents to ask others for directions. Thus, they acquire less knowledge than in isolation. In contrast, organization allows high skill agents to leverage their knowledge through large teams. Hence, they acquire more knowledge than on their own. As a result, organization decreases wage inequality within workers, but increases income inequality among the highest skill agents. We also show that equilibrium assignments and earnings can be interpreted as the outcome of alternative market institutions such as firms, or consulting and referral markets. We use our theory to study the impact of information and communication technology, and contrast its predictions with US evidence.

download in pdf format
   (671 K)

email paper

This paper is available as PDF (671 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11458

Published: Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1383-1435, November.

Users who downloaded this paper also downloaded these:
Antràs, Garicano, and Rossi-Hansberg w11094 Offshoring in a Knowledge Economy
Keller and Yeaple w14626 Global Production and Trade in the Knowledge Economy
Garicano and Hubbard w12815 The Return to Knowledge Hierarchies
Davis and Dingel w18188 A Spatial Knowledge Economy
Antràs, Garicano, and Rossi-Hansberg w12196 Organizing Offshoring: Middle Managers and Communication Costs
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us