Disagreements, Employee spinoffs and the Choice of Technology

Peter Thompson, Jing Chen

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    Most existing models of employee spinoffs assume they are driven by a desire to implement new ideas. However, history is replete with examples of spinoffs that were launched to continue with old ideas that their parents were in the process of abandoning. We develop a model of technology choice in which spinoffs may form to implement new or old technologies. A team of managers engaged in production using technology x, is considering switching to technology y. The value of y is not known and disagreements may emerge among team members. Managers who develop sufficiently strong disagreements with their colleagues choose to form new companies to implement their preferred strategy. Two distinct classes of spinoffs arise. In the first, a spinoff forms when an employee comes to believe it is worth adopting y but the firm does not. In the second, a spinoff arises when an employee sufficiently disagrees with the firmʼs decision to adopt y that he is willing to invest in order to continue with x. We explore the implications of the model for the comparative dynamics of spinoff formation, and the performance of firms.
    Original languageEnglish
    JournalReview of Economic Dynamics
    Issue number3
    Pages (from-to)455-474
    Publication statusPublished - Jul 2011

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