1.5: The Knowledge Spillover View of Entrepreneurship

Question 1

Is there a link between investment in knowledge by universities and entrepreneurial activity?

Answer 1

There is a link between of investment in knowledge by universities and regions to the amount of entrepreneurial activity associated with each.

Question 2

Which institution has a key role in the creation of knowledge?

Answer 2

Universities:
– Academic research
– Provision of human capital

Question 3

How do the Universities provide knowledge through Academic research?

Answer 3

– Publications in scholarly journals
– Knowledge provided by articles can be transferred and transmitted with low costs
– Access is invariant to locational distance from the university that provides the knowledge

Question 4

How do the Universities provide knowledge through Provision of human capital?

Answer 4

– Embodied in students graduating from universities
– Employment of university graduates: most frequent type of interaction between universities and firms [Schartinger et al., 2001]
– Spatial proximity to universities can generate positive externalities that can be accessed by firms through the spillover mechanism of human capital

Question 5

What is the Traditional View of Knowledge and Innovation?

Answer 5

• Exogenously existing firms
• Firms invest in research and development or augmentation of human capital through training and education of workers
• Endogenous creation of new knowledge and ideas
–> Model of the Firm Knowledge Production Function

Question 6

What is the Entrepreneurial Theory of Knowledge?

Answer 6

• Economic agents possess exogenous knowledge
• Agents attempt to appropriate the returns from that knowledge
• Process may involve the endogenous creation of a new firm
–> Knowledge Spillover Theory of Entrepreneurship

Question 7

What are the types of entrepreneurial opportunities?

Answer 7

– Opportunity recognition
– Opportunity discovery
– Opportunity creation

Question 8

What is the actual source of entrepreneurial opportunities?

Answer 8

One Source: Knowledge and ideas that have not been adequately commercialized by incumbent firms.

Question 9

How does knowledge differ from the traditional factors of production?

Answer 9

– Non-excludable
– Non-exhaustive
– Greater degree of uncertainty
– Higher extent of asymmetries

Question 10

What does it mean that knowledge is non-excludable?

Answer 10

New knowledge automatically spills over.

Question 11

Why does knowledge have a Greater degree of uncertainty?

Answer 11

– Expected value of any new idea is highly uncertain
– Variance is much greater than would be if associated with the deployment of traditional factors of production
– E.g. relative certainty about what a worker can contribute
– Innovation: uncertainty whether the new product can be produced, how it can be produced, whether sufficient demand might materialize

Question 12

Why does knowledge have higher asymmetries?

Answer 12

– To correctly evaluate a proposed new idea, the decision maker may need a very special background
– Divergences in background, education or experience lead to divergences in the expected value of a new project or the variance in outcomes anticipated from pursuing that new idea
– Result: divergences in the recognition and evaluation of opportunities across economic agents and decision-making hierarchies
–> Decision-making hierarchies may decide not to pursue and try to commercialize new ideas that individual agents think are valuable and should be pursued

Question 13

What are the two kinds of knowledge?

Answer 13

1. New knowledge

2. Economic or commercialized knowledge

Question 14

What is the gap between new and economic knowledge?

Answer 14

Knowledge filter, which via entrepreneurial activity is bridged.

Question 15

What is the Theory of Endogenous Entrepreneurship, and what leads to increased entrepreneurial opportunities?

Answer 15

Entrepreneurship is an endogenous response to opportunities created by investments in new knowledge that are not commercialized due to the knowledge filter.

Increased investments in new knowledge → increase divergence in evaluation across economic agents → increased entrepreneurial opportunities

Question 16

What is the geographical scope of knowledge spillovers?

Answer 16

It is restricted to a limited number of neighboring regions or to regions within a given maximum distance from the region of interest.

Question 17

What is the Knowledge Spillover Theory of Entrepreneurship?

Answer 17

• Entrepreneurial activity will result from investments in new knowledge
• Entrepreneurial activity will be spatially localized within close geographic proximity to the knowledge source

Question 18

What is the study by Audretsch and Lehmann (2005),

„Does the Knowledge Spillover Theory of Entrepreneurship hold for Regions?”, about?

Answer 18

Study of 281 firms and 73 universities.

Number of articles published by universities and the number of firms located closest to the Universities.

Question 19

What were the control variables in the study of Audretsch and Lehmann (2005)?

Answer 19

• Control variables which may influence the degree of technology Entrepreneurship located around a university
– Dummy variable indicating a technical university: More funds compared to other universities to foster and promote spillovers from new technologies to firms
– Age of university: control for reputation effects
– Number of inhabitants
– Number of universities of applied sciences: not engaged in academic research
– Dummy variable for western or eastern part of Germany: Control for re-unification effects

Question 20

What is the methodology of Audretsch and Lehmann (2005)?

Answer 20

• Estimation of the impact of the technology index and university research output on the role of geographic proximity
• Assumption: number of knowledge spillover startups located within geographic proximity to a university can be interpreted as count data
• Negative binomial regression model

Question 21

What are the results of Audretsch and Lehmann (2005)?

Answer 21

• Higher technological capacity of the region leads to greater number of firms locating in that region
• Higher number of universities of applied sciences leads to higher number of firms
• University output influences location decisions of firms
• Research intense universities especially in natural sciences are more attractive for high-tech firms
• Research activities in social sciences seem to have no impact on the number of firms

Question 22

What is the general conclusion on The Knowledge Spillover View of Entrepreneurship?

Answer 22

• Investment in the creation of new knowledge will generate opportunities for Entrepreneurship as a mechanism for knowledge spillovers
• Empirical examination shows that in regions with a higher knowledge capacity and greater knowledge output a higher number of technology startups is generated