Chapter

Innovation, Resource Allocation, and Governance

Mary O'Sullivan

in Contests for Corporate Control

Published in print June 2001 | ISBN: 9780199244867
Published online November 2003 | e-ISBN: 9780191596735 | DOI: http://dx.doi.org/10.1093/0199244863.003.0002
 Innovation, Resource Allocation, and Governance

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Given the centrality of the process of innovation to the performance of dynamic economies, the types of corporate governance that will promote economic performance can be determined only within a conceptual framework that integrates an analysis of the economics of innovation. In Sect. 1.2, theoretical and empirical research on the economics of innovation is reviewed in order to identify the key stylized facts of the process through which resources are developed and utilized in the economy; innovation is specifically characterized as a process that is cumulative, collective, and uncertain. In Sect. 1.3, it is argued that these characteristics imply that innovation requires an allocation process that is (1) developmental––resources must be committed to irreversible investments with uncertain returns, (2) organizational––returns are generated through the integration of human and physical resources, and (3) strategic––resources are allocated to overcome market and technological conditions that other firms take as given. In Sect. 1.4, the critical characteristics of innovative resource allocation are contrasted with neoclassical resource allocation, which is reversible, individual, and optimal. Section 1.5 discusses the relationships between resource allocation and corporate governance, emphasizing that in spite of continuing attempts by heterodox economists to introduce one or more of the characteristics of resource allocation discussed in Sect. 1.4 to a theory of economic performance (in particular, developmental, organizational, and strategic characteristics), it is only by taking all of these characteristics together that the profound implications they have for the governance of corporations can be seen, implying the need for organizational control over the allocation of resources in the economy.

Keywords: corporate governance; development; economic performance; innovation; organizational control; resource allocation; strategy

Chapter.  15437 words.  Illustrated.

Subjects: Microeconomics

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