To Innovate or Not to Innovate: Incentives and Innovation in Hierarchies

James Dearden (), Barry W Ickes and Larry Samuelson

American Economic Review, 1990, vol. 80, issue 5, 1105-24

Abstract: Hierarchical organizations often perform poorly in inducing the adoption of innovations. The authors examine a principal offering contracts to agents who make unobservable effort and adoption-of-innovation choices (yielding moral hazard); who occupy jobs of differing, unobserved productivities (yielding adverse selection); and who engage in a repeated relationship with the principal (causing a ratchet effect to arise). Increasing the rate of adoption of an innovation in such an organization causes the incentive costs of adoption to increase at an increasing rate. Relatively low rates of adoption may then be a response to the prohibitive incentive costs of higher adoption rates. Copyright 1990 by American Economic Association.

Date: 1990
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Related works:
Working Paper: TO INNOVATE OR NOT TO INNOVATE: INCENTIVES AND INNOVATION IN HIERARCHIES (1988)
Working Paper: TO INNOVATE OR NOT TO INNOVATE: INCENTIVES AND INNOVATION IN HIERARCHIES (1988)
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