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Teck Yong Tan, Knowledge as Property Rights Under the Ratchet Effect of Innovation, Journal of the European Economic Association, Volume 18, Issue 5, October 2020, Pages 2677–2714, https://doi.org/10.1093/jeea/jvz056
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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.