nep-ent New Economics Papers
on Entrepreneurship
Issue of 2007‒04‒28
seven papers chosen by
Marcus Dejardin
Notre-Dame de la Paix University

  1. Entrepreneurship, State Economic Development Policy, and the Entrepreneurial University By Audretsch, David B; Phillips, Ronnie
  2. Globalization and the Rise of the Entrepreneurial Economy By Audretsch, David B; Sanders, Mark
  3. Entrepreneurial decision-making in cooperative organizations - a case study research By Brunner, Daniel; Voigt, Tim
  4. The Incentives to Start New Companies: Evidence from Venture Capital By Robert E. Hall; Susan E. Woodward
  5. Venture capital investment in secondary cities: issues and opportunities for impact By Carole Carlson; Prabal Chakrabarti
  6. Rent Seeking, Market Structure and Growth By Daniel Brou; Michele Ruta
  7. Relocation patterns in U.S. manufacturing By Yoonsoo Lee

  1. By: Audretsch, David B; Phillips, Ronnie
    Abstract: In this paper, we discuss the nature of the university-industry relationship and recommend specific policies to help achieve the goal of greater economic growth. We argue that state-supported research universities can be used to integrate entrepreneurship into state economic development and incubate entrepreneurial companies. Regional entrepreneurship policy is a new strategy that regards economic development as a process that goes from supporting research and development to creating and growing new businesses. Specifically, we believe that an entrepreneurial higher education system is a key to state-level economic policies. There is an opportunity at research universities to combine the human capital talent available on faculties with the needs and expertise of private industry to accelerate entrepreneurship and economic growth.
    Keywords: economic development; entrepreneurship; universities
    JEL: L26
    Date: 2007–04
  2. By: Audretsch, David B; Sanders, Mark
    Abstract: This paper argues that globalization has led to a shift in developed countries from an industrial to an entrepreneurial model of production. Globalization is interpreted as a level shock in the supply of unskilled labor to the world economy, a decrease in the level of political risk associated with outward foreign direct investment (offshoring), and the widespread diffusion of a general purpose technology such as ICT. The impact of these exogenous shocks is then analyzed in a variety expansion model that distinguishes among three types of varieties. Following the life cycle we distinguish among new, mature and offshore production. The above shocks all result in a shift in comparative advantage in developed countries towards new varieties which correspond to the early stage of the product life cycle. Moreover, because entrepreneurs serve as agents that move varieties between life cycle stages, their importance increases due to globalization. The many new opportunities for profit benefit entrepreneurs and skilled labour. By contrast, factors of production employed in the mature stages of the life cycle become less important. Thus, the model explains the emergence of what we label an entrepreneurial economy.
    Keywords: entrepreneurship; globalization
    JEL: F01 J31 O1 P0
    Date: 2007–04
  3. By: Brunner, Daniel; Voigt, Tim
    Abstract: In the context of innovation activitties, the process of new product development and their implementation in the internal structure of the organization requires knowledge communication and decision-making on different levels of the cooperative network. The functions of entrepreneurship are not any longer limited to a single firm but are divided up into different parts along the cooperative network. In our paper we address the question how the requiered market knowledge can be perceived and incorporated in the complex structure of cooperative organizations. The methodological approach of the paper is related to the idea of theorizing by meands of case study research. Therefore we introduce a modified concept of the innovation process with six idealized phases. The results are integrated in the framework by the illustration of three selected practical examples of innovation activities carried out by a German cooperative in the past.
    Keywords: cooperatice; case study research; innovation process; entrepreneurship; decision-making;
    JEL: M13
    Date: 2007–04–23
  4. By: Robert E. Hall; Susan E. Woodward
    Abstract: The standard venture-capital contract rewards entrepreneurs only for creating successful companies that go public or are acquired on favorable terms. As a result, entrepreneurs receive no help from venture capital in avoiding the huge idiosyncratic risk of the typical venture-backed startup. Entrepreneurs earned an average of $9 million from each company that succeeded in attracting venture funding. But entrepreneurs are generally specialized in their own companies and bear the burden of the idiosyncratic risk. Entrepreneurs with a coefficient of relative risk aversion of two would be willing to sell their interests for less than $1 million at the outset rather than face that risk. The standard financial contract provides entrepreneurs capital supplied by passive investors and rewards entrepreneurs for successful outcomes. We track the division of value for a sample of the great majority of U.S. venture-funded companies over the period form 1987 through 2005. Venture capitalists received an average of $5 million in fee revenue from each company they backed. The outside investors in venture capital received a financial return substantially above that of publicly traded companies, but that the excess is mostly a reward for bearing risk. The pure excess return measured by the alpha of the Capital Asset Pricing Model is positive but may reflect only random variation.
    JEL: G12 G24 G32 L14
    Date: 2007–04
  5. By: Carole Carlson; Prabal Chakrabarti
    Abstract: Venture capital has been one of the major drivers of the U.S. economy. Using the State of the Inner City Economies database of the Initiative for a Competitive Inner City, we found that secondary cities – which we have defined as cities outside the 40 largest U.S. metro areas – have received far less than their proportionate share of private equity deals and dollars. By failing to attract capital at similar rates to larger cities, secondary cities are missing a major engine of job and wage growth. Notably, however, a number of secondary cities have managed to assemble the right combination of factors to significantly outperform their peers. To understand this better, we interviewed the leaders of 17 venture capital firms (including both national firms and regional firms and firms representing more than one-half of the top 10 investors in secondary markets). We also interviewed and surveyed 53 companies in secondary markets that successfully received venture capital investment funds, as well as industry experts and venture funding facilitators. Based on these interviews and surveys, our research posits six plausible factors that enable successful secondary cities to attract more venture capital than their peers.
    Keywords: Venture capital ; Cities and towns
    Date: 2007
  6. By: Daniel Brou; Michele Ruta
    Abstract: We construct a model where firms compete in both political and economic markets. In political markets, firms compete for influence over government transfer policy (rents). This activity can be beneficial for the firm, but is purely wasteful from the point of view of society because resources are utilized to achieve a redistribution of income. In the economic market, firms compete for market share through cost reducing technological innovation. Market structure plays an important role in this economy because competition drives firms to invest more in innovation resulting in higher growth. Rent-seeking affects economic growth in two important ways. It diverts resources away from innovation and it affects the number of firms that are supported in equilibrium. The former has a negative effect on growth while the latter effect is ambiguous, depending on whether rent seeking induces entry or exit. This market structure effect depends on a combination of political and economic factors that the theory highlights.
    Keywords: Rent Seeking, Market Structure, R&D Investment, Growth, Welfare
    JEL: D72 L13 O31
    Date: 2007
  7. By: Yoonsoo Lee
    Abstract: This paper summarizes relocation patterns in the U.S. manufacturing industry over the period 1972-1992, using plant- and firm-level data from the U.S. Census of Manufactures. This study contributes to the existing literature on firm dynamics by distinguishing entry due to relocation from entry by new firms, and exit due to relocation from permanent exit. In contrast to previous studies which report that entering plants experience relatively lower productivity, I find that some entering plants—specifically, those that are not new but merely relocated—have higher productivity. I also find a pattern of relocation that suggests that plants tend to be relocated to areas that are becoming new centers for the industry; namely, plants are moved out of areas in which the industry is heavily concentrated to areas where it is not, but these areas also have higher employment growth rates than other areas.
    Keywords: Manufacturing industries ; Industrial location
    Date: 2006

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