Friday, July 19, 2013

The Dynamics of Resource Erosion

DIERICKX Ingemar, COOL Karel, ALMEIDA-COSTA Luis
Read the working paper
INSEAD Working Paper 2013/87/ST

The paper discusses patterns of resource erosion (alternatively called resource decay, leakage, depreciation). Taking a stocks-flows perspective, erosion is conceptualized as the loss of value per period (e.g. a year) of an asset stock (e.g. R&D capital, brand loyalty) as a consequence of a variety of mechanisms (e.g. R&D spill-overs, customers leaving, expiration of a patent). The paper discusses two patterns of erosion, linear and exponential, and explores their strategic implications. The paper also discusses some unexpected outcomes that may result from the combined effect of common growth and decay patterns, as well as additional difficulties that stem from inference lags.