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Field
Abstract
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Before
The evidence on whether small or large firms hold an advantage in innovation remains mixed. This paper revisits this question by combining lab experiments with theory to explain the "firm "size effect" on i"novation. We consider a setting where the principal chooses between a rigid, risk-free project, providing all agents with a uniform payoff, and a flexible, riskier project (with an option to revert to the risk-free project after observing outcomes), which offers potentially higher payoffs for each agent with a certain probability. Some agents (who fail the risky project or suffer a loss due to the principal) may perceive the principal as unfair, leading them to engage in costly punishment or "shading," dire" ted at the principal and other agents. This act cannot be contractually prohibited ex-ante. We hypothesize that shading is more likely to occur in larger firms, generating more excellent resistance to innovation. To reduce the potential shading, we test whether screening out agents with strong shading motives ex ante can foster firm innovation.
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After
The evidence on whether small or large firms hold an advantage in innovation remains mixed. This paper revisits this question by combining lab experiments with theory to explain the "firm size effect" on inovation. We consider a setting where the principal chooses between a rigid, risk-free project, providing all agents with a uniform payoff, and a flexible, riskier project (with an option to revert to the risk-free project after observing outcomes), which offers potentially higher payoffs for each agent with a certain probability. Some agents (who fail the risky project or suffer a loss due to the principal) may perceive the principal as unfair, leading them to engage in costly punishment or "shading", direted at the principal and other agents. This act cannot be contractually prohibited ex-ante. We hypothesize that shading is more likely to occur in larger firms, generating more excellent resistance to innovation. To reduce the potential shading, we test whether screening out agents with strong shading motives ex ante can foster firm innovation.
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