Papers by Thorbjorn Knudsen
Journal of Evolutionary Economics, Jun 28, 2016
In this paper, we highlight the heterogeneity of agents in Schumpeter's theory. Because of its ce... more In this paper, we highlight the heterogeneity of agents in Schumpeter's theory. Because of its centrality in Schumpeter's theory, we argue that agent heterogeneity should also be a key element for economic policy informed by Schumpeter's theory. Schumpeter considered agents' habits as a particularly important source of heterogeneity. We show how Schumpeter's notion of habits is closely related to modern work on habits, and draw on recent research to elaborate theory that can provide the foundation for Schumpeterian economic policy. We argue that heterogeneity of habits can be a crucial building block and foundation of Schumpeterian economic policy: it offers a target for policy interventions that is different from incentives or information. This target is potentially as powerful as incentives or information, which only influence intentions rather than influencing behavior directly.
Social Science Research Network, 2008
Extending Teece's landmark 1986 article, we consider how innovators benefit from value appropriat... more Extending Teece's landmark 1986 article, we consider how innovators benefit from value appropriation and creation. We elaborate on value appropriation, first by pointing out the importance of "industry architectures", i.e. sector-wide templates that circumscribe the division of labor; and second, by treating complementarity and factor mobility as distinctive components of co-specialization. This allows us to qualify Teece's prediction, by positing that firms can create an "architectural advantage" in terms of high levels of value appropriation without the need to engage in vertical integration. Such architectural advantage comes about when firms can enhance both complementarity and mobility in parts of the value chain where they are not active. We then elaborate on value creation by indicating how actors can benefit from investing in assets that appreciate because of innovation, which suggests that firms can benefit from encouraging imitation while investing in complementary assets. We also consider how investment in complementary assets changes the scope of the firm and thereby the development of capabilities that support future innovation. Finally, we provide an integrative guide that explains how firms should manage their position along the value chain to capture returns from innovation, thus extending and qualifying Teece's original 1986 predictions and prescriptions. Published by Elsevier B.V.
Palgrave Macmillan UK eBooks, 2016
Journal of Economic Literature, 2005
Industrial and Corporate Change, Dec 22, 2019
We extend a core idea in James G. March's work, that an ecology of experiential learners may gene... more We extend a core idea in James G. March's work, that an ecology of experiential learners may generate endogenous specialization. Although prior work has studied how division of labor, in the form of task assignments, drives experience effects, we are interested in understanding how division of roles endogenously drives a process of task division, which in turn drives experience effects. The insights from a case study in a bank allow us to capture joint learning among employees who screen loan applications. Organizational roles provide constraints on the way learners interact, and thereby shape the pattern of the learning process as reflected in the subjects' screening functions. We develop an analytical platform-a dynamic screening model-that allow us to extract a mechanism, which can explain the observed screening functions. After fitting the model to data obtained from the case study, we find that organizations' role structures generate distinct patterns of interaction, which in turn lead to distinct patterns of specialization among agents. Our analytical platform offers a broad range of extensions that can be applied to study organizational design and learning. More generally, we hope to revitalize the notion of the organization as a system of interacting roles as a useful analytical perspective in strategy and organization science.
Strategy science, Mar 1, 2019
With 12,500 members from nearly 90 countries, INFORMS is the largest international association of... more With 12,500 members from nearly 90 countries, INFORMS is the largest international association of operations research (O.R.) and analytics professionals and students. INFORMS provides unique networking and learning opportunities for individual professionals, and organizations of all types and sizes, to better understand and use O.R. and analytics tools and methods to transform strategic visions and achieve better outcomes. For more information on INFORMS, its publications, membership, or meetings visit
We analyze the effect of communicating distorted signals by interdependent agents who hold differ... more We analyze the effect of communicating distorted signals by interdependent agents who hold different levels of trust and make repeated decisions, independently and simultaneously, and who learn from each other. We found that in a duopoly model differential levels of misrepresentation and trust of firms have notable and non-trivial effects on profitability. With asymmetric misrepresentation, when the firms have both 1st and 2nd order trust, we find that the firm that misrepresents more gains more, whereas when the firms have 2nd order trust but no 1st order trust, the firm that misrepresents less gains more. We also discuss the effects of firms having different combinations of trust levels. Finally, we conclude with implications and limitations of our findings.
Organization Science, Jun 1, 2016
Traditionally, routines have been perceived as a primary source of inertia, which slows down orga... more Traditionally, routines have been perceived as a primary source of inertia, which slows down organizational change and hinders organizational adaptation. Advancing prior research on routine dynamics, this study examines how inertia in routines influences the process of organizational adaptation, both in the absence and presence of endogenous change of routines. Contrary to conventional wisdom, our analysis suggests an overlooked mechanism by which routine-level inertia may help, rather than hinder, organization-level adaptation. We demonstrate this mechanism by using a simple theoretical model in which the organization is characterized as a configuration of interdependent routines, and study the process by which this configuration adapts to cope with its task environment. We find that inertia in routines may engender potentially useful variation in the process of organizational adaptation because reduced rates of routine-level changes may lead to temporal reordering when these changes are implemented. In our nuanced perspective, inertia is not only a consequence of adaptation or selection as perceived in prior research, but also a source of variation that turns out to be useful for adaptation. This logic is helpful to better understand why apparently inertial organizations keep surviving and from time to time exhibit outstanding performance. We conclude by discussing how this advanced understanding of the role of routines in organizational adaptation helps elaborate the theory of economic evolution.
Palgrave Macmillan UK eBooks, 2018
Known best in the strategy field for his work on the ▶ resource-based view (RBV) of the firm, Bir... more Known best in the strategy field for his work on the ▶ resource-based view (RBV) of the firm, Birger Wernerfelt has also amassed a respectable body of work in the fields of marketing and economics. His professed research topics of interest include the ▶ theory of the firm, selling formats, marketing design, marketing implementation and organizational information processing. Wernerfelt is currently the J. C. Penney Professor of Management at the Massachusetts Institute of Technology. Born in Denmark, Birger Wernerfelt has earned a DBA in Managerial Economics from Harvard University (1975) and an MA in Economics and a BA in Philosophy from the University of Copenhagen. Wernerfelt has held academic positions at
Palgrave Macmillan UK eBooks, 2018
Social Science Research Network, 2007
ABSTRACT The present article develops a behavioural explanation for the emergence of high levels ... more ABSTRACT The present article develops a behavioural explanation for the emergence of high levels of property rights enforcement in Europe in the Middle Ages (11th to 13th centuries). The merchant guilds have a central role in our explanation. We develop an agent-based model that allows a number of important but previously unexplored issues to be considered (such as the joint importance of price variation, guild stability and the effect of uncoordinated embargo pressures among multiple guilds). We show that almost perfect levels of property rights enforcement can emerge solely as a result of multiple guilds' uncoordinated embargo pressures and medium to high levels of price variation. In fact, both conditions were fulfilled in the Middle Ages. In our model, no reputation mechanisms are required; our results solely depend on behavioural adjustment. Our main result is that high levels of property rights enforcement can emerge instead as a result of guilds' embargo pressures and medium to high levels of price variation. This explanation of the emergence of property rights enforcement complements the mechanisms emphasized in previous research.
Organization Science, 2021
Strategic Management Journal, 2020
Research SummaryIn this study, we offer a novel approach, establishing how firm conduct and compe... more Research SummaryIn this study, we offer a novel approach, establishing how firm conduct and competitive interactions among firms jointly provide microfoundations of risk–return relations. Firms influence each other, and the way they reciprocate these influences to cause mutual adjustments is a core feature of industry dynamics. This core feature fundamentally influences risk–return relations. Based on our approach, we develop models that allow us to trace how, at the microlevel, firm conduct in conjunction with competitive interactions generate risk–return relations, and how these are associated with macrolevel measures of industry concentration. That translates into an approach that affords fine‐grained predictions of risk–return relations based on the nature of competition in an industry—for example, Cournot or Bertrand—and observations of the industry's competitive intensity and concentration.Managerial SummaryThe risk‐return trade‐off is of critical importance for strategic ...
Long Range Planning, 2018
Even though war gaming and scenario planning are widely used in business contexts, there is littl... more Even though war gaming and scenario planning are widely used in business contexts, there is little evidence that either practice is associated with superior performance. Why, then, spend the costs? In this paper we address this puzzle and suggest why the extant empirical findings have so far proven limited. We consider the development of these practices and find that they have a substantially entangled and overlapping history, particularly at the RAND Corporation in the 1950s. Despite shared historical roots, the treatment of war gaming and scenario planning in the scholarly literature branched out into different streams. This separation is unfortunate because it obscures a better understanding of the premises under which these practices are effective. We propose an analysis of the overlaps and contrasts of war gaming and scenario planning that sets out clear boundary conditions for their use and efficacy. We find that each practice is tailored to provide strategic guidance in a context where the organization is facing different forms of uncertainty. This suggests they may be effective, and thus improve organizational performance, where the relevant uncertainties are operative. Such benefits would be apparent over longer time scales, and only if the relevant boundary conditions are met. However, to the best of our knowledge, no longitudinal empirical test of either war gaming or scenario planning is available. We therefore conclude that more research is needed to ascertain the true relationship between these popular practices and their performance outcomes.
Scientific Reports, 2018
Human organizations are commonly characterized by a hierarchical chain of command that facilitate... more Human organizations are commonly characterized by a hierarchical chain of command that facilitates division of labor and integration of effort. Higher-level employees set the strategic frame that constrains lower-level employees who carry out the detailed operations serving to implement the strategy. Typically, strategy and operational decisions are carried out by different individuals that act over different timescales and rely on different kinds of information. We hypothesize that when such decision processes are hierarchically distributed among different individuals, they produce highly heterogeneous and strongly path-dependent joint learning dynamics. To investigate this, we design laboratory experiments of human dyads facing repeated joint tasks, in which one individual is assigned the role of carrying out strategy decisions and the other operational ones. The experimental behavior generates a puzzling bimodal performance distribution–some pairs learn, some fail to learn after ...
Organization Science, 2021
This paper addresses a notable gap at the intersection of organizational economics and organizati... more This paper addresses a notable gap at the intersection of organizational economics and organization science: how does organizational context influence aggregation of individual behavior in organizational decisions? Using basic centralized versus decentralized organizational structures as building blocks for our experimental design, we examine whether assignment of organizational positions, incentive schemes, and structural configuration induce endogenous adaptation in the form of change in reservation levels (bias) or modified discrimination capability in subjects’ behavior. We found that evaluators adapted their reservation and discrimination levels in centralized structures, whereas they did not generally adapt their reservation and discrimination levels when placed in decentralized structures. We identify mechanisms that explain these findings; explain how they influence aggregate, organizational behavior; and discuss implications for research and practice.
Strategic Management Journal, Sep 13, 2015
Research summary: We address conflicting claims and mixed empirical findings about adaptation as ... more Research summary: We address conflicting claims and mixed empirical findings about adaptation as a response to increased environmental dynamism. We disentangle distinct dimensions of environmental dynamism—the direction, magnitude, and frequency of change—and identify how selection shapes adaptive responses to these dimensions. Our results show how frequent directional changes undermine the value of exploration and decisively shift performance advantages to inert organizations that restrict exploration. In contrast, increased environmental variance rewards exploration. Our results also show that, in dynamic environments, the best-performing organizations are generally more inert than less successful organizations. Managerial summary: Our research helps managers to understand under what business conditions investments into exploration and strategic flexibility are more likely to pay off. Dynamic business environments characterized by persistent trends and by large, infrequently occurring structural shocks reward strategic pursuit of temporary advantage. Thus, exploration and strategic flexibility are preferred strategies. In contrast, the challenge in frequently changing environments with fleeting opportunities is to identify and to focus on strategic actions whose payoffs on average are high, independent of environmental volatility. Low levels of exploration and long-term strategic focus are preferred strategies in these circumstances. Copyright © 2015 John Wiley & Sons, Ltd.
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Papers by Thorbjorn Knudsen