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Market structure and knowledge acquisition by firms

Market structure and knowledge acquisition by firms Recent models in firm theory assume that problems have to be solved for production to take place and that knowledge is the main input for problem-solving. This paper characterizes the relationship between the predictability of production prcesses and investment in knowledge.Design/methodology/approachThis paper uses a theoretical model of firm theory to study investment in knowledge by a simplified one-layer firm with a stochastic technology, across different market structures, and develops a calibration exercise to illustrate the results.FindingsFirms working closer to the production frontier (those with a larger efficient scale in perfect competition, facing a higher demand in monopoly or more competitive internationally in an open economy) react more in terms of investment in knowledge when problem predictability changes. Investment in knowledge becomes nearly insensitive to such changes for firms with a low output, i.e. those far from the frontier. A calibration exercise suggests that the elasticity of knowledge with respect to the predictability of problems was around 0.59 for the US economy for the period 1980–2020.Originality/valueThese are the first nonambiguous results on the relationship between the predictability of production processes and investment in knowledge and help understanding knowledge acquisition by different firms in distinct competitive environments. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Market structure and knowledge acquisition by firms

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0144-3585
DOI
10.1108/jes-02-2020-0071
Publisher site
See Article on Publisher Site

Abstract

Recent models in firm theory assume that problems have to be solved for production to take place and that knowledge is the main input for problem-solving. This paper characterizes the relationship between the predictability of production prcesses and investment in knowledge.Design/methodology/approachThis paper uses a theoretical model of firm theory to study investment in knowledge by a simplified one-layer firm with a stochastic technology, across different market structures, and develops a calibration exercise to illustrate the results.FindingsFirms working closer to the production frontier (those with a larger efficient scale in perfect competition, facing a higher demand in monopoly or more competitive internationally in an open economy) react more in terms of investment in knowledge when problem predictability changes. Investment in knowledge becomes nearly insensitive to such changes for firms with a low output, i.e. those far from the frontier. A calibration exercise suggests that the elasticity of knowledge with respect to the predictability of problems was around 0.59 for the US economy for the period 1980–2020.Originality/valueThese are the first nonambiguous results on the relationship between the predictability of production processes and investment in knowledge and help understanding knowledge acquisition by different firms in distinct competitive environments.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Aug 12, 2021

Keywords: Knowledge acquisition; Market structures; Predictability of production processes

References