The Circulation of Ideas in Firms and Markets
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.
We would like to thank Daron Acemoglu, Amar Bhidé, Oliver Hart, Josh Lerner, Scott Stern, and seminar participants at the AEA-AFE session on Financing Innovation in Philadelphia, London School of Economics, London Business School, NBER Entrepreneurship Group, NBER Organizational Economics Group, Stanford GSB, University College London, University of Amsterdam, and the University of British Columbia, for their valuable comments. All errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Thomas Hellmann & Enrico Perotti, 2011. "The Circulation of Ideas in Firms and Markets," Management Science, INFORMS, vol. 57(10), pages 1813-1826, October. citation courtesy of