BEYOND TRANSACTION EFFICIENCY: THE EFFECT OF KNOWLEDGE INTERDEPENDENCE ON FIRMS' R&D SCOPE DECISIONS.

Uncertainty has long been understood as a stimulus for firms to manage their boundaries, i.e., to define the scope of their activities. In the extant literature, however, predictions exists that firms would increase--or decrease--their scope of activities when facing uncertainty. To reconcile these conflicting positions, we propose a model in which the system-level knowledge property interdependence moderates the effect of technological uncertainty on firms' R&D scope decisions. To test our model empirically, we develop a new set of measures for knowledge interdependence and technological uncertainty, and collect 33 years of data (1967-2000) on patenting activity and firm boundary location from the automotive airbag industry. The results of our analysis suggest that firm boundary decisions for knowledge-intensive activities such as R&D tend to be more impacted by considerations of the underlying knowledge structure than transaction efficiency. We discuss the implications of these findings for managerial practice and future research. [ABSTRACT FROM AUTHOR]