Abstract
This paper integrates a learning model and two production models with endogenous technical change emphasizing the importance of tacit knowledge capital (KC). Individual business firms may experience diminishing returns to their existing tacit KC. However, when these firms update their tacit KC using the dialectical learning process, they can increase their productivity (output per worker) potentially creating a natural externality in their industry. Because firm-level production innovations cannot be perfectly patented or kept secret, tacit knowledge created by one firm can spill over to the industry leading to increasing returns to tacit KC. A conceptual framework is developed showing that increasing the tacit knowledge base of the firm is needed to foster the technical change required to increase productivity in both the firm and corresponding industry. Causes of diminishing returns to existing tacit KC at the firm level are discussed. Also, some pathways to increasing industrial returns to tacit KC are explored.
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Notes
“Linking the Cobb-Douglas Production Function to the Solow Growth Model” section is partially adapted from McGahagan (2000) and Woods (2007).
Mathematically, the marginal product of labor \( \left({\mathrm{MP}}_{\mathrm{L}}\right) = \frac{\partial Q}{\partial L} < 0 \).
Mathematically, the marginal product of capital \( \left({\mathrm{MP}}_{\mathrm{K}}\right) = \frac{\partial Q}{\partial K} < 0 \). For example, adding a second computer screen to a computer would initially increase the productivity of the computer operator. However, adding successive computer screens to a single computer will eventually become a distraction to the operator causing a decline in the operator’s productivity and output.
The author recently toured a large manufacturing plant. Production lines were redesigned in an inverted U shape rather than linearly. This increased the field of vision for the assembly worker requiring fewer steps and less time to monitor the production process. The inverted U shape production line also enabled the elimination of an additional production worker. By redesigning the plant, a larger capital/labor ratio per production line improved productivity (output per worker).
Note that physical capital also has the characteristic of being a private, rival good that is excludable.
Mathematically, the marginal product of existing tacit KC \( \left({\mathrm{MP}}_{\mathrm{tkc}}\right) = \kern0.5em \frac{\partial q}{\partial \mathrm{t}\mathrm{k}\mathrm{c}} < 0 \).
Path dependence is exhibited by firms when the behavior of output produced depends on the repeated use of the existing production techniques they follow (Cortright 2001).
Cognitive capture is also referred to as inattentional blindness (see Mack and Rock 2000).
“Using the Dialectical Learning Process to Increase the Tacit Knowledge of the Firm” section is largely adapted from Woods (2012).
Mathematically, \( \frac{\partial Q}{\partial \mathrm{T}\mathrm{K}\mathrm{A}}=A \).
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I thank Brandon Katz for technical research assistance.
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Woods, J.G. From Decreasing to Increasing Returns: the Role of Tacit Knowledge Capital in Firm Production and Industrial Growth. J Knowl Econ 10, 1482–1496 (2019). https://doi.org/10.1007/s13132-016-0351-2
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DOI: https://doi.org/10.1007/s13132-016-0351-2