Organizing Idea Flows

Esteban Rossi-Hansberg and Ezra Oberfield

No 1218, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We study an environment in which individuals form production hierarchies and transmit knowledge by working together. Individuals with more knowledge can solve a wider range of problems and hierarchies form to leverage the time of those with more knowledge. Individuals learn by seeing their superiors solve difficult problems. An individual is compensated for solving problems and for increasing the knowledge of coworkers, but compensates her firm for the opportunity to learn. We study life-cycle earnings profiles as individuals attain knowledge and move through production hierarchies. We also study how changes in the cost of communicating alter equilibrium hierarchies, life-cycle earnings profiles, and ultimately earnings inequality.

Date: 2015
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