nep-ent New Economics Papers
on Entrepreneurship
Issue of 2006‒06‒03
twenty-one papers chosen by
Marcus Dejardin
Facultes Universitaires Notre-Dame de la Paix

  1. Why Butterflies Don’t Leave - Spatial development of new firms By Erik Stam
  2. Entrepreneurial capabilities inherited from previous employment By Sierdjan Koster
  3. Entrepreneurship and Asymmetric Information in Input Markets By Robin Boadway; Motohiro Sato
  4. Banking Entrepreneurship Differentials between Europe and USA. A Note By Miltiades N. Georgiou; Nicholas Kyriazes
  5. Comparative social capital: Networks of entrepreneurs and investors in China and Russia By Bat Batjargal; Bat Batjargal;
  6. Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital By Robert Fairlie; Alicia Robb
  7. Families, Human Capital, and Small Business: Evidence from the Characteristics of Business Owners Survey By Robert Fairlie; Alicia Robb
  8. Intra-Industry Spinoffs By Peter Thompson; Steven Klepper
  9. Entrepreneurial attitude, geographical isolation and university students - some evidence from the Atlantic By António Almeida; João Andrade; João Freitas; Isabel Martins
  10. Measuring the Dynamics of Young and Small Businesses: Integrating the Employer and Nonemployer Universes By Javier Miranda; Alfred Nucci; Steven J. Davis; John Haltiwanger; Ron S. Jarmin; C.J. Krizan; Kristin Sandusky
  11. The Impact of Minimum Quality Standards on Firm Entry, Exit and Product Quality: The Case of the Child Care Market By V. Joseph Hotz; Mo Xiao
  12. The Effectiveness of University Technology Transfer: Lessons Learned from Qualitative and Quantitative Research in the U.S. and U.K. By Phillip H. Phan; Donald S. Siegel
  13. The Role of Retail Chains: National, Regional, and Industry Results By Ronald Jarmin; Shawn Klimek; Javier Miranda
  14. Proprietary Income, Entrepreneurial Risk, and the Predictability of U.S. Stock Returns By Mathias Hoffmann
  15. The Influence of Geographic Clusters and Knowledge Spillovers on the Product Innovation Activities of New Ventures By Brett Anitra Gilbert; Mika Tatum Kusar
  16. The Industry Life-Cycle of the Size Distribution of Firms By Glenn MacDonald; Emin Dinlersoz
  17. Plant Turnover and Demand Fluctuations in the Ready-Mix Concrete Industry By Allan Collard-Wexler
  18. International Firm Activities and Innovation: Evidence from Knowledge Production Functions for German Firms By Joachim Wagner
  19. Company R&D and University R&D - How Are They Related? By Charlie Karlsson; Martin Andersson
  20. How is Value Created in Spin-Offs? A Look Inside the Black Box By Debarshi Nandy; Thomas Chemmanur
  21. Technological and Social Costs and Benefits of Patent Systems By Murat Yildizoglu; Thomas Vallée

  1. By: Erik Stam
    Abstract: There is an emerging interest in the local conditions of entrepreneurship and firm dynamics. The often-cited examples of entrepreneurship in successful regional clusters show that entrepreneurship is really a localized phenomenon, which seems to be at odds with the increased globalization of economic activity, in which firms are said to be relatively footloose and easily become multinational enterprises. Other authors have noted that in spite of information and communication technologies, the vital importance of face-to-face contact cannot be discounted (Hallowell, 1999); as Leamer and Storper (2001: 641) observe, the Internet “allows long distance ‘conversations’ but not ‘handshakes’ ”. Next to controversies concerning the role of the global and the local for firms (cf. West, 2002), there is a general weakness in the theory of the firm concerning the analysis of (new) firm dynamics. According to Geroski (2001) the theory of the firm in economics is preoccupied by the question of why firms exist, and it is both very narrow and very static. Further work in this area might be usefully extended to address the question of how firms grow and develop over time, and this, in turn, will force people to think through issues associated with what makes change difficult for firms. We will deal with these issues in a discussion of evolutionary theories of the firm in general, and specific theories of the entrepreneurial firm and the multinational firm in particular, and regional cluster approaches. The central question in this paper is: “Are there necessary interactions between the development of entrepreneurial firms and their spatial organization over time?”. We will deal with this question in a longitudinal way, i.e. analyze the development of entrepreneurial firms and the changes in their spatial organization during their life course. The development of entrepreneurial firms involves the firm–founding (Shane and Khurana, 2003) and the subsequent early growth (Garnsey, 1998) of the firm. These firms are not self-employed (anymore), and mostly not (yet) a multinational corporation; in a sense they are neither small nor large, but dynamic, turning from a caterpillar into a butterfly (cf. Penrose 1995), and are central to dynamics in the new, or entrepreneurial economy (Bresnahan et al., 2001; Audretsch and Thurik, 2003). The empirical part of this study is based on comparative case studies (Eisenhardt, 1989; Yin, 2003) of 25 entrepreneurial firms, and 8 micro firms in four propulsive industries, namely professional business services, biomedicals, graphics-media, and shipbuilding. The spatial organization of firms consists of the dynamic constructs of locational adjustment and locational flexibility, which refer to the adjustment of the spatial organization of firms outside the headquarter (the location at which the entrepreneur/owner-manager executes his activities) of the firm and to the flexibility of the location of the headquarter respectively. With these two dimensions the tendency towards concentration or dispersion of the firm can be observed (cf. Storper, 1997, p.299-300). The spatial development of new firms consists of the sequence of locational events. Locational events refer to the changes in the state of the spatial organization of firms. The different types of locational events were coded in order to find typical sequences of locational events (cf. Abbott, 1995). Concrete events have been studied that may be unique to some extent. However, “[t]he focus is not on how or why something happened but on how or why something happens” (Mohr, 1982, p.5). We are looking for mechanisms that explain the spatial development of new firms. The abstract knowledge resulting from insight into these mechanisms may be more generally applicable. We have used a combination of quantitative and qualitative methods. We registered the general characteristics of the entrepreneur, his network relations, the firm (its strategy, structure and capabilities), inter-organizational relations, and their locations. The qualitative method involved a life history of the firm as told by the entrepreneur (Van Geenhuizen et al., 1992). This life history has been explicated with a critical incident technique (Tjosvold and Weicker, 1993; Chell and Pittaway, 1998). The fieldwork involved the study of how (location) decisions are actually made during the life course of emerging firms and how they affect and are affected by the firms’ development in general. Next to the quantitative data derived from the interviews other data from company archives, the press and other media was collected. The empirical study shows that capabilities more often seem to constrain (as a place-specific sunk cost) than to enable the spatial flexibility of entrepreneurial firms. However, certain organizational capabilities have to be built in order to become multilocational, especially on the interregional and international levels. The inter-organizational networks in regional clusters are hardly relevant in the explanation of the dynamics in the spatial organization of entrepreneurial firms. They only seem to constrain the location behavior in the early phases of entrepreneurial firms, when radical changes in the spatial organization are almost never considered at all.
    Date: 2005–08
  2. By: Sierdjan Koster
    Abstract: The start-up process of every firm is unique; backgrounds of the founders differ, the goals of the firm differ, sectors differ. However, in firm demographic research there is a continuing quest for regularities in order to understand the start-up process of firms better. In relation to problems with the new foundings birth rate, an important dimension in the start-up process is the influence of existing firms on the start-up of new ones. Is the new firm an individual effort or is the new firm heavily influenced by another firm? This question can be approached from a organisational and an individual perspective. The organisational view takes the firm as a starting point, whereas the individual perspective focuses on the entrepreneur. Both views allow an analysis of the influence of other firms. Taking the organisational viewpoint, new firms can be classified from totally new entities to diversified parts of large existing firms. The former is a totally new configuration of resources, but the latter heavily builds on existing structures and organisation. The processes are pretty straightforward to recognize as the path history of the firms can be traced back pretty easily. However, little is known about the importance of different groups. How many firms are actual new configurations, and how many built upon existing firms? From the individual viewpoint, the influence of other firms is less easily recognised. Many studies reason along the lines of experience. Firms influence the start-up of new ones by educating their employees and giving them expertise in this way. The entrepreneurs use this to start up their own firm. Experienced founders start better firms than other entrants. Several studies have come up with this logically appealing result. After all, it makes sense that entrepreneurs with a reasonable degree of knowledge about the new firm and its sector will perform better than entrepreneurs with less experience. The experience of founders, however, is usually rather loosely defined and in many cases there is only a dichotomy between sector experience (spin-offs) and entrepreneurship experience (habitual entrepreneurs). At the level of the knowledge itself, very little is known and the mechanisms of knowledge transfer from existing firms to new ones are treated as a black-box. Consequently, the role of existing firms as educational institutes for entrepreneurs is only approximately known. This paper focuses on the question to what extent firms are actually new, or that they can be seen as rearrangements of old firms. Which are the most important resources transferred from firm to firm? Both the organisational approach and the individual are applied. The empirical results are based on a large questionnaire (N=347) of Dutch entrepreneurs and a follow-up in the form of focus interviews with the entrepreneurs. It appears that most entrepreneurs have a solid background in the business they are in. About 80% of all entrepreneurs has built up knowledge during their previous job, that they now use being an entrepreneur. Besides 20% of all entrepreneurs even receive direct help from their previous employers. From an organisational perspective, a large share of all firms has been based on existing firms, either as a continuation of a stopped firm (18%), or a diversified part of a larger company (10%). The paper concludes by proposing a framework, based on the above findings, that facilitates a new approach to birth rate calculation methods.
    Date: 2005–08
  3. By: Robin Boadway (Queen's University); Motohiro Sato (Hitotsubashi University)
    Abstract: Entrepreneurs starting new firms face two sorts of asymmetric information problems. Information about the quality of new investments may be private, leading to adverse selection in credit markets. And, entrepreneurs may not observe the quality of workers applying for jobs, resulting in adverse selection in labor markets. We construct a simple model to illustrate some consequences of new firms facing both sorts of asymmetric information. Multiple equilibria can occur. Stable equilibria can be in the interior, or at a corner in which no entrepreneurs enter. Stable interior equilibria can involve involuntary unemployment, as well as credit rationing. Equilibrium outcomes mismatch workers to firms, and will generally result in an inefficient number of new firms. With involuntary unemployment, there will be too few new firms, but with full employment, there may be too many or too few. Taxes or subsidies on new firms and employment can be used to achieve a second-best optimum. Alternative information assumptions are explored.
    Keywords: entrepreneurship, asymmetric information, adverse selection
    JEL: D82 G14 H25
    Date: 2006–05
  4. By: Miltiades N. Georgiou; Nicholas Kyriazes
    Date: 2006–05
  5. By: Bat Batjargal; Bat Batjargal;
    Abstract: Most studies on entrepreneurs’ networks incorporate social capital and networks as independent variables that affect entrepreneurs’ actions and its outcomes. By contrast, this article examines social capital of the Chinese and Russian entrepreneurs and venture capitalists as dependent variables, and it examines entrepreneurs’ social capital from the perspectives of institutional theory and cultural theory. The empirical data are composed of structured telephone interviews with 159 software entrepreneurs, and the data of 124 venture capital decisions in Beijing and Moscow. The study found that social networks of the Chinese entrepreneurs are smaller in size, denser in structure, and more homogeneous in composition compared to networks of the Russian entrepreneurs due to the institutional and cultural differences between the two countries. Furthermore, the study revealed that dyadic (two-person) ties are stronger and interpersonal trust is greater in China than in Russia. The research and practical implications are discussed.
    Keywords: Social capital, entrepreneurs, venture capitalists, China and Russia.
    JEL: M13 F23 G24
    Date: 2005–07–01
  6. By: Robert Fairlie; Alicia Robb
    Abstract: Four decades ago, Nathan Glazer and Daniel Patrick Moynihan made the argument that the black family "was not strong enough to create those extended clans that elsewhere were most helpful for businessmen and professionals." Using data from the confidential and restricted access Characteristics of Business Owners Survey, we investigate this hypothesis by examining whether racial differences in family business backgrounds can explain why black-owned businesses lag substantially behind white-owned businesses in sales, profits, employment size and survival probabilities? Estimates from the CBO indicate that black business owners have a relatively disadvantaged family business background compared with white business owners. Black business owners are much less likely than white business owners to have had a self-employed family member owner prior to starting their business and are less likely to have worked in that family member's business. We do not, however, find sizeable racial differences in inheritances of business. Using a nonlinear decomposition technique, we find that the relatively low probability of having a self-employed family member prior to business startup among blacks does not generally contribute to racial differences in small business outcomes. Instead, the lack of prior work experience in a family business among black business owners, perhaps by limiting their acquisition of general and specific business human capital, negatively affects black business outcomes. We also find that limited opportunities for acquiring specific business human capital through work experience in businesses providing similar goods and services contribute to worse business outcomes among blacks. We compare these estimates to contributions from racial differences in owner's education, startup capital, geographical location and other factors.
    Date: 2005–06
  7. By: Robert Fairlie; Alicia Robb
    Abstract: An important finding in the rapidly growing literature on self-employment is that the probability of self-employment is substantially higher among the children of business owners than among the children of non-business owners. Using data from the confidential and restricted-access Characteristics of Business Owners (CBO) Survey, we provide some suggestive evidence on the causes of intergenerational links in business ownership and the related issue of how having a family business background affects small business outcomes. Estimates from the CBO indicate that more than half of all business owners had a self-employed family member prior to starting their business. Conditional on having a self-employed family member, less than 50 percent of small business owners worked in that family member's business suggesting that it is unlikely that intergenerational links in self-employment are solely due to the acquisition of general and specific business capital and that instead similarities across family members in entrepreneurial preferences may explain part of the relationship. In contrast, estimates from regression models conditioning on business ownership indicate that having a self-employed family member plays only a minor role in determining small business outcomes, whereas the business human capital acquired from prior work experience in a family member's business appears to be very important for business success. Estimates from the CBO also indicate that only 1.6 percent of all small businesses are inherited suggesting that the role of business inheritances in determining intergenerational links in self-employment is limited at best.
    Date: 2005–06
  8. By: Peter Thompson (Department of Economics, Florida International University); Steven Klepper (Department of Social and Decision Sciences, Carnegie Mellon University)
    Abstract: A growing empirical literature on spinoff formation has begun to reveal some striking regularities about which firms are most likely to spawn spinoffs, when they are most likely to spawn them, and the relationship between the quality of the parent firm and its spinoffs. Deeper investigations into the causes of spinoffs have highlighted the impor-tance of strategic disagreements in driving some employees to resign and found a new venture. Motivated by this literature, we construct a new theory of spinoff formation driven by strategic disagreements, and show how the theory can explain the emerging empirical regularities.
    Keywords: Spinoffs, learning, strategic disagreement
    JEL: L2 D70 D83
    Date: 2006–06
  9. By: António Almeida; João Andrade; João Freitas; Isabel Martins
    Abstract: Some regions like Island of Madeira show high levels of firm birth rate. But the entrepreneurial experience is quite different from the European reality given the high level of micro-business owing o subsistence reasons, as a response to the reduced opportunity costs, the lack of profitable employment options and the high levels of unemployment. As a consequence the high level of entrepreneurship is only partially related to high tech innovative firms, qualified employment growth and economic diversification. The majority of the new firms are linked with traditional sectors (restaurants, boutiques, personal services and civil construction. Firm creation is also a result of the EU integration and cohesion policies. On the other hand infra-structure development policies explain the increasing importance of the public administration in terms of employment and consequently the low levels of unemployment. Traditionally, in the islands, the government intervention in terms of employment, economic planning is considered excessive. The island economies have been able to benefit from large streams of international solidarity in terms of high external aid per capita especially due to their strategic relevance. But the global economic and political change associated with the globalisation put increasing pressure on the island forcing them to reformulate their economic, social and political options. International donors and institutions like World Bank stresses issues such as economic diversification, economic and social modernisation and macroeconomic policies focused o supply side effects and the development of economic growth determining factors. Due to the reduced levels of international aid, islands are obliged to diminish levels of government intervention connected to public employment and direct production activities and to enhance private initiatives and entrepreneurship. In what concerns the outermost regions the EU enlargement demands increasing levels of competitivity, financial autonomy, economic diversification and entrepreneurial attitude. Given the lack of studies in this geographical area, the on-going economic, social and cultural modernisation induced by the integration in The EU sphere and the widespread perception about the changing times, we intend in this study to give some answers to the following questions: .how is the entrepreneurial attitude affected by the historical record of high levels of government intervention and public employment? .what kind of impacts results from the perceived “island penalty”, in terms of propensity towards entrepreneurship? .What is the main obstacle to the entrepreneurial event? .Should one wish to create a firm, what is the probability of the stated preference is in the high tech sectors? What kind of support will be required and welcomed from the public institutions? Studies and academic studies in islands have some advantages. The agglomeration of institutions, populations, firms and social networks in a reduced geographical space enable us to capture in some detail a vast group of variables, relationships and cause effects linked to a specific subject. Islands societies have a large and cohesive social capital, and share a homogenous set of values and cultural attitudes, which facilitates experiences of collective action. To conduct an empirical test in order to find out the most influential variables in the entrepreneurship attitude we use logit equations. The sample is made up of local university students, theoretically the most apt in developing innovative firms. We investigate also the differences between economics and managements and humanities students in terms of entrepreneurship propensity. An important matter in isolated, peripheral and underdeveloped regions is the diffusion of innovations. Consequently, student’s sources of information and knowledge regarding the overall tendencies of profitable, innovative and fashionable entrepreneurial experiences must be identified. Therefore, this paper describes the changing and uncertain economic and political environment faced by islands societies. A contextualisation of the relationship between entrepreneurship, economic growth and insular penalty is stretched and lastly, we provide an empirical study related to the entrepreneurial attitude in an insular region: The Island of Madeira.
    Date: 2005–08
  10. By: Javier Miranda; Alfred Nucci; Steven J. Davis; John Haltiwanger; Ron S. Jarmin; C.J. Krizan; Kristin Sandusky
    Abstract: We develop a preliminary version of an Integrated Longitudinal Business Database (ILBD) that combines administrative records and survey-based data for virtually all employer and nonemployer business units in the United States. In the process, we confront conceptual and practical issues that arise in measuring the importance and dynamic behavior of younger and smaller businesses. We also document some basic facts about younger and smaller businesses. In doing so, we exploit the ability of the ILBD to follow business transitions between employer and nonemployer status, and vice-versa. This aspect of the ILBD opens a new frontier for the study of business formation and the precursors to job creation in the U.S. economy.
    Keywords: Data integration, nonemployer businesses, LBD
    JEL: L22 M13
    Date: 2006–02
  11. By: V. Joseph Hotz; Mo Xiao
    Abstract: We examine the impact of minimum quality standards on the supply side of the child care market, using a unique panel data set merged from the Census of Services Industries, state regulation data, and administrative accreditation records from the National Association of Education for Young Children. We control for state-specific and time-specific fixed effects in order to mitigate the biases associated with policy endogeneity. We find that the effects of quality standards specifying the labor intensiveness of child care services are strikingly different from those specifying staff qualifications. Higher staff-child ratio requirements deter entry and reduce the number of operating child care establishments. This entry barrier appears to select establishments with better quality into the market and alleviates competition among existing establishments: existing establishments are more likely to receive accreditation and higher profits, and are less likely to exit. By contrast, higher staff-education requirements do not have entry-deterrence effects. They do have the unintended effects of discouraging accreditation, reducing owners’ profits, and driving firms out of businesses.
    JEL: L5 L8
    Date: 2005–12
  12. By: Phillip H. Phan (Lally School of Management & Technology, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA); Donald S. Siegel (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: In recent years, there have been numerous studies of the effectiveness of university technology transfer. Such technology transfer mechanisms include licensing agreements between the university and private firms, science parks, incubators, and university-based startups. We review and synthesize these papers and present some pointed recommendations on how to enhance effectiveness. Implementation of these recommendations will depend on the mechanisms that universities choose to stress, based on their technology transfer "strategy." For example, institutions that emphasize the entrepreneurial dimension of technology transfer must address skill deficiencies in technology transfer offices, reward systems that are inconsistent with enhanced entrepreneurial activity and the lack of training for faculty members, post-docs, and graduate students in starting new ventures or interacting with entrepreneurs. We conjecture that business schools are best positioned to address these skill and educational deficiencies through the delivery of targeted programs to technology licensing officers and members of the campus community wishing to launch startup firms.
    JEL: M13 D24 L31 O31 O32
    Date: 2006–04
  13. By: Ronald Jarmin; Shawn Klimek; Javier Miranda
    Abstract: We use the establishment level data in the Longitudinal Business Database to measure changes in market structure in the U.S. Retail Trade sector during the period, 1976 to 2000. We use firm ownership information to construct measures of firm entry and exit and also to categorize four types of retail firms: single location, and local, regional, and national chains. We use detailed location data to examine market structure in both national and county markets. We summarize the county level results into three groups: metropolitan, micropolitan, and rural. We find that retail activity is increasingly occurring at establishments owned by chain firms, especially large national chains. On average, we find that all types of retail firms are increasing in size during the period. We also find that larger markets experience more firm turnover. Finally, we see that entry and exit rates vary across two-digit retail industries.
    Keywords: retail trade, chain store, dynamics
    JEL: L11 L81 R12
    Date: 2005–12
  14. By: Mathias Hoffmann
    Abstract: Small businesses tend to be owned by wealthy households. Such entrepreneur households also own a large share of U.S. stock market wealth. Fluctuations in entrepreneurs’ hunger for risk could therefore help explain time variation in the equity premium. The paper suggests an entrepreneurial distress factor that is based on a cointegrating relationship between consumption and income from proprietary and non-proprietary wealth. I call this factor the cpy residual. It reflects cyclical fluctuations in proprietary income, is highly correlated with cross-sectional measures of idiosyncratic entrepreneurial risk and has considerable forecasting power for U.S. stock returns. In line with the theoretical mechanism, the correlation between cpy and the stock market has been declining since the beginning of the 1980s as stock market participation has widened and as entrepreneurial risk has become more easily diversifiable in the wake of U.S. state-level bank deregulation.
    Keywords: non-insurable background risk, entrepreneurial income, equity risk premium, long-horizon predictability
    JEL: E21 E31 G12
    Date: 2006
  15. By: Brett Anitra Gilbert; Mika Tatum Kusar
    Abstract: Geographic clusters have an impressive track record for producing innovative firms. In this research, we examine whether a geographic cluster location and the knowledge spillovers new ventures assimilate influence both their explorative and exploitative innovation activities. We hypothesize a stronger relationship of industry clustering on exploitative innovations but a stronger relationship of knowledge spillovers on explorative innovations. We expect the interaction will result in more exploitative innovations than explorative innovations. The data support most hypotheses.
    Date: 2006–05
  16. By: Glenn MacDonald; Emin Dinlersoz
    Abstract: This paper analyzes the evolution of the distributions of output and employment across firms in U.S. manufacturing industries from 1963 until 1997. The evolutions of the employment and output distributions differ, but display strong inter-industry regularities, including that the nature of the evolution depends whether the industry is experiencing growth, shakeout, maturity, or decline. The observed patterns have implications for theories of industry dynamics and evolution.
    Keywords: Firm size distribution, industry evolution, industry dynamics, manufacturing industries
    JEL: L11 L60
    Date: 2005–07
  17. By: Allan Collard-Wexler
    Abstract: Fluctuations in demand cause some plants to exit a market and other to enter. Would eliminating these ‡uctuations reduce plant turnover? A structural model of entry and exit in concentrated markets is estimated for the ready-mix concrete industry, using plant level data from the U.S. Census. The Nested Pseudo-Likelihood algorithm is used to …nd parameters which rationalize behavior of …rms involved in repeated competition. Due to high sunk costs, turnover rates would only be reduced by 3% by eliminating demand ‡uctuations at the county level, saving around 20 million dollars a year in scrapped capital. However, demand ‡uctuations blunt …rms’incentive to invest, reducing the number of large plants by more than 50%.
    Date: 2006–03
  18. By: Joachim Wagner
    Abstract: Using a knowledge production framework and a rich set of plant level data this study demonstrates that in Germany firms that are active on international markets as exporters or foreign direct investors do generate more new knowledge than firms which sell on the national market only. These differences are not only due to a larger firm size, or different industries, or the use of more researchers in these firms, but due to the fact these globally engaged firms learn more from external sources, too. The importance of these knowledge sources varies with the type of innovation. These results, which are broadly in line with the findings of a recent study using UK firm level data, can help to explain the strong positive correlation between productivity and international activities of firms. Firms that are active on markets beyond the national borders generate higher levels of new knowledge that feed into higher productivity.
    Keywords: Exports, foreign direct investment, knowledge production function, Germany
    JEL: F14 F23 O31
    Date: 2006–05
  19. By: Charlie Karlsson; Martin Andersson
    Abstract: At the same time as we can observe strong tendencies of a globalisation of R&D, we also can observe a strong spatial clustering of R&D and related innovative activities. The standard explanation in the literature of the clustering of innovative activities is that such clusters offer external knowledge economies to innovative companies, since they are dependent upon knowledge flows and that knowledge flows are spatially bounded. Obviously, location is crucial in understanding knowledge flows and knowledge production, since knowledge sources have been found to be geographically concentrated. There are two major performers of R&D: industry and universities. It seems rather straight-forward to assume that industrial R&D might be attracted to locate near research universities doing R&D in fields relevant to industry. Already as far back as in the 1960s a number of case studies confirmed the important roles played by Stanford University and MIT for commercial innovation and entrepreneurship. During the years a large number of formal studies have presented evidences of a positive impact of university R&D on firm performance. The question is, does it also work the other way around? Does industrial R&D function as an attractor for university R&D? We may actually think of several reasons why university R&D may grow close to industry R&D. First of all political decision-makers may decide to start or expand university R&D at locations where industry already is doing R&D. Secondly, we can imagine that industry doing R&D in a region might use part of their R&D funds to finance university R&D. Thirdly, universities in regions with industrial R&D might find it easier to attract R&D funds from national and international sources due to co-operation with industry. Obviously, not all types of university R&D attract industrial R&D. There are reasons to believe that, in particular, university R&D in natural, technical and medical sciences attracts industrial R&D but that there are also strong reasons to believe that there are variations between different sectors of industry regarding how dependent their R&D is to be located close to university R&D. The above implies that there are behavioural relationships between industrial R&D and university R&D and vice versa. However, the litrature contains few studies dealing with this problem. Most studies have concentrated on the one-directional effect from university R&D to industrial R&D and the outputs of industrial R&D in most cases measured in terms of the number of patents and neglected the possible mutual interaction. However, if there is a mutual interaction between university and industry R&D, and if there are knowledge externalities involved, then we can develop a dynamic explanation to the clustering of innovative activities based on positive feedback loops. This would imply strong tendencies to path dependency and that policy initiatives to transfer non-innovative regions to innovative regions would have small chances to succeed. The fact that knowledge flows seem to be spatially bounded implies that proximity matters. Most contributions analysing spatial knowledge flows have used very crude measures of proximity. However, there are some authors that have argued that proximity could be measured using accessibility measures. Accessibility measures can be used to model interaction opportunities at different spatial scales: local, intra-regional and inter-regional. The purpose of this paper is to analyse the locational relationship between industry R&D and university R&D in Sweden using a simultaneous equation approach and to analyse existing differences between different science areas and different industry sectors.
    Date: 2005–08
  20. By: Debarshi Nandy; Thomas Chemmanur
    Abstract: Using a unique sample of plant level data from the Longitudinal Research Database (LRD), we identify (for the first time in the literature), how (the precise channel and mechanism), where (parent or subsidiary), and when (the dynamic pattern) performance improvements arise following corporate spinoffs. We identify the source of value improvements in spin-offs by comparing the magnitude of post-spinoff changes in the wages, employment, materials costs, rental and administrative expenses, sales, and capital expenditures in the plants belonging to firms undergoing spin-offs relative to the magnitude of such changes in a control group of plants belonging to firms not undergoing spin-offs. We show that the total factor productivity (TFP) of plants belonging to spin-off firms (parent or spun-off subsidiary) increase, on average, following the spin-off. This increase in overall productivity begins immediately, starting with the first year following the spin-off, and continuing in the years thereafter. This performance improvement can be attributed to a decrease in workers' wages, employment at the plant, decrease in the cost of materials purchased, as well as a decrease in rental and office expenditures, but not from improved product market performance by these plants. Further, such productivity improvements arise primarily in plants that remain with the parent; plants belonging to the spun-off subsidiary do not experience such productivity increases. However, contrary to speculation in the previous literature, plants that are spun-off do not underperform parent plants prior to the spin-off. Finally, in our split-sample study of plants that were acquired subsequent to the spin-off and those that were not, we find that productivity increases for both groups of plants: while such productivity increases start immediately after the spin-off for the nonacquired plants, for the acquired plants they occur only after being taken over by a better management team.
    Date: 2005–07
  21. By: Murat Yildizoglu; Thomas Vallée
    Abstract: "If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it." Machlup (1958) - cited by Hall (2002) <p>The demand for a stronger patenting system has become in the recent period a major source of tension between the U.S. government and the E.U. The US demand is generally motivated by the conventional economic wisdom affirming that a strong patenting system yields convenient incentives for the private investment in Research and Development (R&D) and hence, for technical progress in Society. This rather mechanistic approach of technological dynamics and of the role of the patenting is mainly based on the neoclassical theory of technical progress that strongly focuses on the agents' incentives rather than on the dynamics of the existent technological systems. Other appreciations of the existing patenting systems have nevertheless continued to be quite critical (see Machlup (1958) and Penrose (1951)). These appreciations are generally based on approaches where the nature of the actual technologies plays a central role. Moreover, the first part of the opinion emitted by Machlup in the above excerpt becomes very urgent since the question of establishing a strong patenting system is actually scrutinized for some industries in Europe (like the software industry) and in some countries (like Russia and China). We should hence consider the social costs of the patenting system, as well as its advantages, in order to guide such decisions. More specifically, it is time to seriously consider and check the old and new criticism of this system. The shortcomings of the standard wisdom have more recently been pointed out by Merges & Nelson (1990) and Mazzoleni & Nelson (1998). We propose to reassess the theoretical social value of patenting through a model founded on the approach adopted by these more empirical and conceptual studies. <p>We develop a simulation model based on the Nelson & Winter (1982), part V. This basic model is completed by a patent system that allows the protection of the innovations. We therefore use this model for evaluating the efficiency of this system under different technological conditions emphasized by Merges & Nelson (1990) and as a function of different dimensions of patents (mainly their length and their breadth). An econometric study of the results from Monte Carlo simulations is used to evaluate the determinants of the Social costs and benefits of patents. These social effects are mainly characterized at two levels: at the level of the efficiency of the technical progress in the industry, and at the level of the social surplus. <p>The neoclassical approaches conclude to a positive effect on both dimensions. Evolutionary approaches point at the contingency of these results with respect to the technological particularities of the industries. For example, Merges & Nelson (1990) distinguishes four classes of technologies in which the role of patents can be strongly contrasted: discrete inventions, cumulative technologies, chemical technologies and sciencebased technologies. We propose to include the specificities of these classes in our analysis, through different calibrations of the technology space of our industry dynamics model. The results of the simulations will then allow us to check the effectiveness of the patenting system in different configurations and with different characteristics measuring its strength. <p>References <p>Hall, B. (2002), "Current issues and trends in the economics of patents", Lecture to the ESSID Summer School in Industrial Dynamics <p>Hall, B. & Ham Ziedonis, R. M. (2001), The effects of strengthening patent rights on firms engaged in cumulative innovation: Insights from the semiconductor industry, in G. Libecap, ed., "Entrepreneurial Inputs and Outcomes: New Studies of Entrepreneurship in the United States", Vol. 13 of Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, Elsevier Science, Amsterdam. <p>Jaffe, A. B. (2000), "The u.s. patent system in transition: Policy innovation and the innovation process", Research Policy 29, 531–557. Machlup, F. (1958), "An economic review of the patent system", Study No. 15 of Commission on Judiciary, Sub comm. on Patents, Trademarks, and Copyrights, 85th Congress, 2d Session. <p>Mazzoleni, R. & Nelson, R. R. (1998), "The benefits and costs of strong patent protection: A contribution to the current debate", Research Policy 27, 273–284. <p>Merges, R. & Nelson, R. R. (1990), "On the complex economics of patent scope", Columbia Law Review 90, 839–916. <p>Nelson, R. R. & Winter, S. (1982), An Evolutionary Theory of Economic Change, The Belknap Press of Harvard University, London. <p>Penrose, E. (1951), The Economics of the International Patent System, John Hopkins University Press, Baltimore
    Keywords: Patent system, social welfare, public policy, intellectual property rights, industrial dynamics
    JEL: O31 O34 O38
    Date: 2004–08–11

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