TY  - JOUR
AU  - Garicano,Luis
AU  - Rossi-Hansberg,Esteban
TI  - Organization and Inequality in a Knowledge Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11458
PY  - 2005
Y2  - July 2005
UR  - http://www.nber.org/papers/w11458
L1  - http://www.nber.org/papers/w11458.pdf
N1  - Author contact info:
Luis Garicano
Departments of Management and Economics and
Centre for Economic Performance
London School of Economics
Houghton Street
London WC2A 2AE
United Kingdom
E-Mail: garicano@lse.ac.uk

Esteban Rossi-Hansberg
Princeton University
Department of Economics
Fisher Hall
Princeton, NJ 08544-1021
Tel: 609/2584024
Fax: 650/725-5702
E-Mail: erossi@princeton.edu
M2  - featured in NBER digest on 2005-07-04
AB  - 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.
ER  -