Tuesday, November 29, 2016

Holmstrom's strikes

" Styhzed facts indicate that small firms are responsible for a disproportionate share of innovative research.

 "There are many possible explanations for this fact. The paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations. It is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes. Mixing hard to measure activities (innovation) with easy to measure activities (routine) is particularly costfy, since it will either lead to misail~ation of attention across tasks or to mi~l~ation of risk. Larger firms am at a comparative disadvantage in conducting highly innovative research, because of the costs associated with managing a heterogeneous set of tasks. It is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratiza- tion within the firm and to financial constraints imposed by capital markets, both of which are hostile to innovation."

" For an increasing number of firms, innovation has become an urgent concern. "