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Optimal Investment in Knowledge Within a Firm Using a Market Mechanism

Management Science, Volume 47, Issue 9

Pages 1203 - 1219

Published: 01 September 2001 Publication History

Abstract

<P>There has been an extensive research literature on auctions, but recent developments in technology have resulted in new interest in auction mechanisms as a practical way of allocating resources. This paper presents a new double-auction mechanism to handle resource allocation for public goods when complementarity exists.</P> <P>The mechanism is placed in the context of an organization's internal knowledge investment. Knowledge goods have two distinct characteristics. First, knowledge within an organization can be considered a public good, so it is subject to the free-rider problem. Second, knowledge is interrelated and interdependent; that is, there is complementarity among knowledge components. The value of knowledge often derives from a bundle of knowledge components, rather than from its individual pieces. These two characteristics present a serious challenge to allocating organizational resources for knowledge goods.</P> <P>We introduce an internal market in which knowledge providers offer knowledge projects and knowledge consumers place bids to acquire them. The mechanism is a Groves-Clarke-type double auction that allows bundled knowledge goods to be traded so as to recognize complementarities between knowledge projects. The market mechanism we propose is incentive compatible; i.e., it induces people to reveal their true valuation. In addition, it allows trades of knowledge bundles to determine which knowledge components are most valuable from the organization's viewpoint. Under mild assumptions, the mechanism is a computationally tractable solution to operating a market of bundled public goods. We further show how "imputed prices" can be calculated for subsets of knowledge components and prove that a market mechanism that does not allow bundle orders or does not address the free-rider problem yields a systematic underinvestment in knowledge.</P>

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Cited By

Hsieh FWu KLee JKauffman RLee ZLang KYoo BLi T(2015)Influence of Transportation Cost on Combinatorial AuctionsProceedings of the 17th International Conference on Electronic Commerce 201510.1145/2781562.2781579(1-7)Online publication date: 3-Aug-2015
https://dl.acm.org/doi/10.1145/2781562.2781579
Escudero LLandete MMarín A(2009)A branch-and-cut algorithm for the Winner Determination ProblemDecision Support Systems10.1016/j.dss.2008.10.00946:3(649-659)Online publication date: 1-Feb-2009
https://dl.acm.org/doi/10.1016/j.dss.2008.10.009
Vaezi S(2008)Critical success factors for implementing knowledge based models for electronic public services (EPS)Proceedings of the 2nd international conference on Theory and practice of electronic governance10.1145/1509096.1509198(471-473)Online publication date: 1-Dec-2008
https://dl.acm.org/doi/10.1145/1509096.1509198
Show More Cited By

Index Terms

Optimal Investment in Knowledge Within a Firm Using a Market Mechanism
1. Applied computing
  1. Enterprise computing
  2. Operations research
    1. Marketing

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cover image Management Science

Management Science Volume 47, Issue 9

September 2001

138 pages

ISSN:0025-1909

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INFORMS

Linthicum, MD, United States

Publication History

Published: 01 September 2001

Received: 14 March 2000

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Cited By

Hsieh FWu KLee JKauffman RLee ZLang KYoo BLi T(2015)Influence of Transportation Cost on Combinatorial AuctionsProceedings of the 17th International Conference on Electronic Commerce 201510.1145/2781562.2781579(1-7)Online publication date: 3-Aug-2015
https://dl.acm.org/doi/10.1145/2781562.2781579
Escudero LLandete MMarín A(2009)A branch-and-cut algorithm for the Winner Determination ProblemDecision Support Systems10.1016/j.dss.2008.10.00946:3(649-659)Online publication date: 1-Feb-2009
https://dl.acm.org/doi/10.1016/j.dss.2008.10.009
Vaezi S(2008)Critical success factors for implementing knowledge based models for electronic public services (EPS)Proceedings of the 2nd international conference on Theory and practice of electronic governance10.1145/1509096.1509198(471-473)Online publication date: 1-Dec-2008
https://dl.acm.org/doi/10.1145/1509096.1509198
Bandyopadhyay SPathak P(2007)Knowledge sharing and cooperation in outsourcing projects - A game theoretic analysisDecision Support Systems10.1016/j.dss.2006.10.00643:2(349-358)Online publication date: 1-Mar-2007
https://dl.acm.org/doi/10.1016/j.dss.2006.10.006
Raghu TVinze A(2007)A business process context for Knowledge ManagementDecision Support Systems10.1016/j.dss.2005.05.03143:3(1062-1079)Online publication date: 1-Apr-2007
https://dl.acm.org/doi/10.1016/j.dss.2005.05.031
Brydon M(2006)Economic metaphors for solving intrafirm allocation problemsDecision Support Systems10.1016/j.dss.2006.02.00942:3(1657-1672)Online publication date: 1-Dec-2006
https://dl.acm.org/doi/10.1016/j.dss.2006.02.009
Parameswaran MSusarla AWhinston A(2001)P2P NetworkingComputer10.1109/2.93350134:7(31-38)Online publication date: 1-Jul-2001
https://dl.acm.org/doi/10.1109/2.933501

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