Smithian growth through creative organization

Legros, P., Newman, A. F. and Proto, E. (2014) Smithian growth through creative organization. Review of Economics and Statistics, 96(5), pp. 796-811. (doi: 10.1162/REST_a_00421)

Abstract

We model technological progress as an external effect of organizational design, focusing on how factories, based on labor division, could spawn the Industrial Revolution. Dividing labor, as Adam Smith argued, facilitates invention by observers of production processes. However, entrepreneurs cannot internalize this benefit and choose labor division to facilitate monitoring. Equilibrium with few entrepreneurs features low wage shares, and high specialization, but a limited market for innovations. Conversely, with many entrepreneurs, there is a large market for innovation but little specialization because of high wage shares. Technological progress therefore occurs with a moderate scarcity of entrepreneurs. Institutional improvements affect growth ambiguously.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Newman, Professor Andrew and Proto, Professor Eugenio
• Authors: Legros, P., Newman, A. F., and Proto, E.
• College/School: College of Social Sciences > Adam Smith Business School > Economics; College of Social Sciences > Adam Smith Business School > Management
• Journal Name: Review of Economics and Statistics
• Publisher: MIT Press
• ISSN: 0034-6535
• ISSN (Online): 1530-9142
• Published Online: 29 October 2013
• Copyright Holders: Copyright © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology
• First Published: First published in Review of Economics and Statistics 96(5):796-811
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher