the knowledge spillover theory of entrepreneurship in an endogenous growth model zoltan acs george...

The Knowledge Spillover Theory of Entrepreneurship in an

Endogenous Growth Model

Zoltan AcsGeorge Mason University

Imperial College

Mark SandersUtrecht School of Economics

m.w.j.l.sanders@uu.nl

9-10 May 2013Charlotteville

Motivation“economic leadership (entrepreneurship) in particular must hence be distinguished from “invention.” As long as they are not carried into practice, inventions are economically irrelevant…

…It is, therefore, not advisable, and it may be misleading, to stress the element of invention as much as many writers do.” Schumpeter (1911) p. 88

Motivation

Producers of n intermediate

goods

Producers of final good C

Consumers of final good C

New Entry R&D

Upstream Knowledge Spillovers

Intertemporal Spillovers

Intertemporal Spillovers

Downstream Knowledge Spillovers

MotivationGrowth and Ideas; the basic model structure

ConsumersProducers/IntermediatesInvention, Innovation and GrowthSpillovers inter- and intratemporalSpillovers automatic externality

Schumpeter and Endogenous Growth TheoryInnovation vs. InventionWho gets rents?Opportunities vs. IdeasThe source of vs. the bottlenecks in innovationDoes it all matter?

This PaperContributions

We combine in a general equilibrium setting:

1. Endogenous Commercialization (Schumpeter)

2. Endogenous Opportunity Creation (Romer)

3. Interplay and resulting growth dynamics (Acs and Sanders)

Implications1. Monopoly Rents reward Entrepreneurs (Schumpeter)

2. Opportunity Creation is suboptimal in DC-E (Romer)

3. Commercialization is suboptimal in DC-E (Acs and Sanders)

The Model

Producers of final good C

Consumers of final good C

Producers of n intermediate

goods

Capital Market

Labor Market Knowledge Flows

The ModelExternalities…

Knowledge flows that are not appropriated:

1. From R&D to Entrepreneurs2. From past Entrepreneurs to present Entrepreneurs3. From Entrepreneurs to R&D

Knowledge flows that are appropriated:

1. From past R&D to present R&D

…working in different directions.

The Model

Propositions*:1.More knowledge intensive economy allocates too much effort to R&D.2.More diversified economy allocates too much effort to E’ship.3.Less competitive intermediate sector allocates too much effort to E’ship.4.Strong downstream spillovers allocate too much effort to R&D.5.Strong upstream spillover allocate too much effort to E’ship.

*too much relative to the alternative activity

Entrepreneurial Growth TheoryNew Features:

Captures spin-out/offCaptures upstream spillovers (specialization)

Captures downstream spillovers (opportunities) Innovation rents motivate commercializationProductivity gains motivate R&D

Results in line with new growth theory:Growth is Sub-OptimalCase for R&D subsidy

Results adding to new growth theory:Case for Entrepreneurship policyOpen R&D labs vs. strict IPROther sources of opportunity may be consideredDistinguishing entrepreneurs from inventors……matters qualitatively for results.

ConclusionIn the tradition of Schumpeter we:…separate commercialization and invention,…allocate the residual rents to the entrepreneur,…assume opportunity to be an intra temporal spillover.

In the tradition of Romer we:…rationalize knowledge creation,…and allow for inter temporal spillover,…and we show it all in an analytically closed GE-model.

Our ModelConsumers (standard dynamic optimization)

Where μ(t) is the shadow price (in period 0 utils) of assets.

There is posit

ive and growing

demand for fi

nal goods

Our ModelFinal Goods Producers

There is posit

ive demand for

labor and all i

ntermediate goods

Our ModelFinal Goods Producers (R&D)

Final Goods P

roducers

do R&D to

increase Firm

Specific K

nowledge

Our ModelIntermediate Goods Producers (Entry)

Entry-Arbitrage:

Monopoly profits motiv

ate and

finance new firm

entry

Our ModelEquilibrium in the educated labor market:

wS w ˜ w

Our ModelEquilibrium

A/n

1

A/n*

Our ModelEquilibrium Steady State:

)/( nnfnA

γδ

E

R

nA

ψφ

LL

βαβα

nn

ρrww

BB

CC

XX

KK 2

ER

P

LL

LL

1

;*Stable Unique Positive Growth

Steady State Exists