Dynamics of knowledge creation and transfer: The two person case

This paper presents a micro-model of knowledge creation and transfer for a couple. Our model incorporates two key aspects of the cooperative process of knowledge creation: (i) heterogeneity of people in their state of knowledge is essential for successful cooperation in the joint creation of new ideas, while (ii) the very process of cooperative knowledge creation a¤ects the heterogeneity of people through the accumulation of knowledge in common. The model features myopic agents in a pure externality model of interaction. In the two person case, we show that the equilibrium process tends to result in the accumulation of too much knowledge in common compared to the most productive state. Equilibrium paths are found analytically, and they are a discontinuous function of initial heterogeneity. JEL Classi cation Numbers: D83, O31, R11 Keywords: knowledge creation, knowledge transfer, knowledge externalities, endogenous agent heterogeneity This research owes much to the kind hospitality and stimulating environment of the Kyoto Institute of Economic Research, where most of our arguments and do-si-dos occurred