Information Cost, Learning, and Trust Lessons from Co-operation and Higher-order Capabilities Amongst Geographically Proximate Firms

In this short paper, I put forward an argument about trust based upon an information cost perspective. I argue that, in different contexts, different origins of trust come to dominate. This is so, because different possible origins of trust have a different information cost, and different contexts have different information availability. Agents learn about this, and place their trust accordingly. I provide an empirical example, and list some traits of information availability between geographically proximate firms. The information cost argument explains why a particular way of trusting is prevalent in some proximate ‘communities’ of agents.Trust; governance; information cost; organisational learning; industrial districts

Localized Learning and Social Capital The Geography Effect in Technological and Institutional Dynamics

Providing a concise working definition of social capital, this conceptual paper analyses why social capital is important for learning and economic development, why it has a regional dimension, and how it is created. It argues that with the rise of the Knowledge Economy, social capital is becoming valuable because it organizes markets, lowering business firms’ costs of coordinating and allowing them to flexibly connect and reconnect. Thus, it serves as a social framework for localized learning in both breadth and depth. The paper suggests that a range of social phenomena such as altruism, trust, participation, and inclusion, are created when a matrix of various social relations is combined with particular normative and cognitive social institutions that facilitate cooperation and reciprocity. Such a matrix of social relations, plus facilitating institutions, is what the paper defines as “social capital”. The paper further suggests that social capital is formed at the regional (rather than national or international) level, because it is at this level we find the densest matrices of social relations. The paper also offers a discussion of how regional policies may be suited for promoting social capital.Social capital, knowledge economy, regional dimension

The Cluster as Market Organization

The many competing schools of thought concerning themselves with industrial clusters have at least one thing in common: they all agree that clusters are real life phenomena characterized by the co-localization of separate economic entities, which are in some sense related, but not joined together by any common ownership or management. So hierarchies they are certainly not. Yet, it is usually taken for granted that clusters, almost regardless of how they are defined, all expatriate the 'swollen middle' of various hybrid 'forms of long-term contracting, reciprocal trading, regulation, franchising and the like' residing somewhere between hierarchies and markets. This fundamental (but usually implicit) assumption would, perhaps, be justified if markets could be reduced to events of exchange of property rights, between large numbers of price-taking anonymous buyers and sellers supplied with perfect information as they are commonly conceived in mainstream economics. One of the original attractions of Neoclassical price theory was precisely that it promised a way of analysing the economy in general and market exchange in particular independently of specific institutional settings. However, introducing transaction costs as more than fees paid to intermediaries leads inevitably to comparative institutional analysis and, not to be forgotten, to the perception of markets as institutions with specific characteristics of their own. Some sets of characteristics are so common that they represent a specific market organization or market form. The cluster is one such specific market organization that is structured along territorial lines because this enables the building of a set of institutions that are helpful in conducting certain kinds of economic activities. Supported by empirical illustrations the paper argues that clusters are markets where commodities, services and knowledge are traded in a notably efficient way among the insiders without restricting their abilities to build pipelines and to interact with suppliers and customers residing elsewhere. The institutions characterizing this market form help creating an environment among insiders that reduces the barriers to acquiring and utilising knowledge produced or used locally.Clusters, organisation, knowledge transfer, transaction costs

On the Economics of Innovation Projects Product Experimentation in the Music Industry

The paper is conceptual, combining project and economic organization literatures in order to explain the organization and management of market-based projects. It dedicates particular focus to projects set up in order to facilitate product innovation through experimentation. It investigates the internal vs. market economies of scale and scope related to projects, as well as the issues of governance, planning and coordination related to reaping such economies. Incorporating transaction cost perspectives as well as considerations of labour markets, the paper explains the management of market-organized innovation projects by virtue of localized project ecologies and local labour markets of leaders and boundary spanners. It illustrates its arguments with a case study of the Recorded Music industry.Project management, product innovation

Global Strategy and the Acquisition of Local Knowledge How MNCs Enter Regional Knowledge Clusters

The paper addresses two recent interrelated phenomena: High- tech regional knowledge clusters, and globalization of R&D activities by multinational corporations (MNCs). Combining MNC literature; regional development literature; and literature on social networks, the paper discusses determinants of entry modes used by MNCs that localize R&D units in regional knowledge clusters. The paper states that the entry mode used by a MNC depends upon the type of agglomeration economies the latter seeks to appropriate: Those related to network relations; to local labor market specialization; or to institutional specialization. The paper adds theoretical insight into advantages and disadvantages of different entry modes with respect to appropriation of agglomeration economies, and special attention is dedicated to discussing acquisition. Through the use of an empirical case ¾ the entry of five MNCs into the Danish telecommunications cluster in Aalborg, the paper exemplifies its theoretical observations, but also points to how the evolution of a knowledge cluster may be severely affected by MNCs that enter through acquisition.MNCs; entry mode; acquisition; explorative R&D; regional clusters; localized learning; networks; telecommunications industry; North Jutland; Denmark.

Breakout from Bollywood? Internationalization of Indian Film Industry

In the context of an emerging economy, the paper analyzes indigenous growth and internationalization. Using novel and original data, the paper studies the Indian film cluster in Mumbai, Bollywood. It argues that as the world’s biggest commercial film cluster and a conspicuous growth phenomenon in an emerging economy context, Bollywood can be seen as a paradigmatic case for adding to our understanding of the development of film clusters outside the USA, as well as suggesting more general insights into the growth and internationalization of industries in emerging economies. The empirical analysis of the paper points to the importance of home market, government regulation, and industry structure for Bollywood’s recent export growth. The paper discusses how the existence of a well-defined and geographically centered social network among producers, directors and other key roles in filmmaking in Mumbai supports the development of a ‘Bollywood model’ of filmmaking with a industry structure remarkably different from Hollywood’s.Film industry, India, Bollywood, networks, home market, industry structure, exports, institutional change, emerging economies

The Geography of the European Creative Class A Rank-Size Analysis

Using novel statistical data, the paper analyzes the geographical distribution of Richard Florida’s creative class among 445 European cities. The paper demonstrates that size matters, i.e. cities with a high proportion of creative class tend to get more creative through attraction of still more creative labor. More specifically, the distribution of the European creative class falls into three phases, each approximating a rank-size rule, with different exponents (i.e., inequality). The exponent for the smallest cities is profoundly more negative than for the middle-sized cities, and this tendency is stronger for the creative class than for the general population. Furthermore, the exponent of the largest cities is slightly less negative than the middle-sized cities, and this tendency is also stronger for the creative class. In order to explain this, the paper presents four propositions about how effects of large and small population sizes of cities may be more detrimental to attracting the creative class than attracting the population in general. Below a population size of approximately 70,000 inhabitants, there is a rapid drop of attractiveness to the creative class with decreasing city size. We propose that this may be because below this size, cities begin to drop below minimum efficient market sizes for particular creative services, below minimum labor market sizes for particular creative job types, and below minimum levels of political representation by the creative class. Above a European city population size of approximately 1,2 million inhabitants, the attractiveness of increasing city size for the creative class drops, and we propose that the creative class may respond particularly adversely to urban congestion.

On the Globalization of the Film Industry

The paper presents stylized facts about the economic organisation of the film industry, arguing that while we know a lot about production, specialization and internationalization, the complex processes of globalization are still under-researched. The paper concludes with a research agenda of how to address globalization