Knowledge Sources and Waste Reduction: Less is More

Firms that seek innovative techniques to improve their production efficiency face a tradeoff when deciding how many knowledge sources to use. Using multiple knowledge sources helps firms identify viable solutions but also increases the costs of collecting and using information. We study how U.S. manufacturing facilities, from 1991 to 2005, improve production efficiency by reducing their annual output of toxic waste. Results show that the more knowledge sources facilities use in a year, the less chemical waste they reduce, particularly for larger facilities and those using fewer external sources. At the same time, though, using multiple knowledge sources over time helps improve production efficiency. The findings suggest that searching for one knowledge source in one time period while adding variety over time contributes to greater production efficiency.