Knowledge as Property Rights Under the Ratchet Effect of Innovation

The Management of Innovation

Teck Yong Tan

Journal of the European Economic Association, 2020, vol. 18, issue 5, 2677-2714

Abstract: This paper studies how reduced oversight creates an incentive for process innovation. With incomplete contracts, tight monitoring of workers creates a ratchet effect of innovation. Under reduced oversight, a worker accrues private knowledge about his innovation, which serves as a substitute for its inalienable property rights. The resulting asymmetric information generates an information rent for the worker, which feeds back as an innovation incentive ex ante. A weak early production incentive is required to complement it. Innovations are generally underutilized ex post, and mildly successful innovations are not distinguished from failed innovation attempts.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:18:y:2020:i:5:p:2677-2714.

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