COMPLEXITY, NETWORKS AND KNOWLEDGE FLOW.

Abstract

Because knowledge plays an important role in wealth creation, economic actors may attempt to skew the flow of knowledge in their favor. Managers of a firm may seek to spread knowledge widely within their organization but prevent its diffusion to rivals, for instance. We ask, when will knowledge developed in one area of dense social connections - such as a firm, a geographic locale, or a technological community - diffuse to the edge of that area but not further? Marrying an understanding of social networks with a view of knowledge transfer as a search process, we argue that the degree of knowledge inequality across social boundaries depends crucially on the nature of the knowledge. Simple knowledge diffuses readily across boundaries because outsiders poorly connected to the knowledge source can compensate for their poor access by means of local search. Complex knowledge resists diffusion even within the social circles in which it originated. With knowledge of moderate complexity, however, insiders can achieve diffusion by coupling high-fidelity transmission along social conduits with local search, while interdependencies stymie outsiders who rely more on local search. Knowledge inequality across social boundaries, then, reaches its maximum for knowledge of moderate complexity. To test this hypothesis, we compare patent citation rates across three types of boundaries: within versus outside the firm, geographically near to versus far from the inventor, and internal versus external to the technological class. We find robust support for the hypothesis and discuss important implications for actors who aim to heighten or diminish knowledge inequality.

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