the knowledge spillover theory of entrepreneurship in an endogenous growth model zoltan acs george...
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The Knowledge Spillover Theory of Entrepreneurship in an
Endogenous Growth Model
Zoltan AcsGeorge Mason University
Imperial College
Mark SandersUtrecht School of Economics
9-10 May 2013Charlotteville
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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
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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
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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?
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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)
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The Model
Producers of final good C
Consumers of final good C
Producers of n intermediate
goods
Capital Market
Labor Market Knowledge Flows
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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.
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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
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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.
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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.
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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
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Our ModelFinal Goods Producers
There is posit
ive demand for
labor and all i
ntermediate goods
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Our ModelFinal Goods Producers (R&D)
Final Goods P
roducers
do R&D to
increase Firm
Specific K
nowledge
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Our ModelIntermediate Goods Producers (Entry)
Entry-Arbitrage:
Monopoly profits motiv
ate and
finance new firm
entry
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Our ModelEquilibrium in the educated labor market:
wS w ˜ w
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Our ModelEquilibrium
A/n
1
A/n*
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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