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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/25983
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| Title: | Curb Your Innovation: On the Relationship Between Innovation and
Governance Structure |
| Authors: | Baccara, Mariagiovanna
Razin, Ronny |
| Issue Date: | |
| Series/Report no.: | CLB-06-010 |
| Abstract: | In this paper, we analyze the relationship between innovation and
firms’ governance structure. We present and analyze a simple model
in which the firm’s governance struc- ture influences the behavior
of innovative employees and, in turn, innovation brings about changes to
the firm’s governance structure. Central to our analysis is the
notion that power and rent sharing are reassessed when new ideas are
implemented. The new rent allocation is determined by the ex-post
bargaining power of all players involved in the new project. We
highlight two problems that the owners of firms face in these
situations. First, the tendency of owners to expropriate the rents of
innovators often leads innovators to leave firms before revealing their
ideas internally. Second, the fear of intra-firm rent redistribution
brought about by innovation often results in conserva-tive attitudes
among the firm owners. After illustrating how our model captures these
two problems, we disscuss how alternative decision-making protocols,
such as delegat-ing authority to a CEO or decentralizing the
decision-making process of the firm, can help to mitigate them. These
results are consistent with patterns of innovation and governance
observed in the high-tech industry. |
| URI: | http://hdl.handle.net/2451/25983 |
| Appears in Collections: | NYU Pollack Center for Law & Business Working Papers
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