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Fission, Forking, and Fine Tuning

Richard Langlois ()

No 2017-15, Working papers from University of Connecticut, Department of Economics

Abstract: Perhaps because we live in the age of the Internet and social networks, everyone seems agreed that innovation is all about recombination. Although not fully dissenting from this consensus, and perhaps in the end affirming it in an important way, I want to draw attention to some apparently different mechanisms of innovation, both suggested by Adam Smith: subdivision (or differentiation) and fine-tuning. On the surface at least, these – especially the second – do not appear to be processes of recombination. I will attempt to elucidate what I mean by these concepts and try to think about how they fit together with recombination in a full Smithian account of innovation. Whether innovation proceeds from the top down or the bottom up depends crucially on the structure of complementary stages in the process of production. Especially if it takes place in a non-modular way, recombination may require unified decision rights, implying the vertical integration of complementary stages of production, in order to overcome the dynamic transaction costs of change. But the processes of subdivision and differentiation may also require changes in decision rights in order to overcome dynamic transaction costs. I illustrate these points with a case study of three generations of an American family of inventor-entrepreneurs in electricity and electronics.

Keywords: Innovation; Decision Rights; Dynamic Transaction Costs; Modularity; Institutions (search for similar items in EconPapers)
JEL-codes: B12 B25 D23 L26 L63 L92 M13 N81 N82 O31 O33 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-07
New Economics Papers: this item is included in nep-ent and nep-ino
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Journal Article: Fission, forking and fine tuning (2018) Downloads
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