Developing Shared Knowledge in Growing Firms

Abstract

I develop a theory of knowledge sharing in organizations where coordinated activity requires shared knowledge, and knowledge sharing is local and costly. Because knowledge sharing is local, knowledge diffuses gradually across an organization. Because knowledge sharing is costly, diffusion may stall, resulting in inefficiently fragmented knowledge. The theory suggests that excessively rapid organizational growth may result in fragmentation or in the abandonment of the organization’s early knowledge, and that these effects may persist in the long-run, even after the initial period of growth has ended. To avoid fragmentation, highly productive firms should deliberately constrain firm growth and avoid acquisition-based growth strategies. (JEL D21, D83, C73, J24)