Knowledge-based Hierarchies: Using Organizations to Understand the Economy

Occasional Paper Number 43 (October 2014) from the Centre for Economic Performance by Luis Garicano and Esteban Rossi-Hansberg

Abstract

We argue that incorporating the decision of how to organise the acquisition, use, and communication of knowledge into economic models is essential to understand a wide variety of economic phenomena.

We survey the literature that has used knowledge-based hierarchies to study issues like the evolution of wage inequality, the growth and productivity of firms, economic development, the gains from international trade, as well as offshoring and the formation of international production teams, among many others.

We also review the nascent empirical literature that has, so far, confirmed the importance of organisational decisions and many of its more salient implications.

Full text (PDF 47 pp)

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