Ebook The Knowledge Spillover Theory of Entrepreneurship
The field of entrepreneurship has been defined as the study of “how, by whom and with what consequences opportunities to produce future goods and services are discovered, evaluated and exploited” (Shane and Venkataraman, 2000).
However, it can be argued that research has focused on discovery, exploitation, and their consequences without much attention to the nature and sources of opportunity itself. While some researchers argue that the subjectivity or socially constructed nature of opportunity makes it impossible to separate it from the individual, others contend opportunity is an objective construct visible only to the knowledgeable and attuned individuals. In either case, a set of weakly held assumptions appear to dominate this debate leaving the fundamental nature of opportunity vague and unresolved (Acs and Audretsch, 2005).
Schumpeter, like others, did not believe that the entrepreneur had to worry about where opportunities come from. But for the study of entrepreneurship as a field, the question where opportunities come from is central. While a generation of scholars spent the better part of a half-century trying to figure out the relationship among the entrepreneur, product development and technological innovation (Shane and Ulrich, 2004), a new generation of scholars was able to explain where opportunity themselves came from. Today we know that the technology opportunity set is endogenously created by investments in knowledge (Jones, 2002). However, not only does new knowledge contribute to technological opportunity, but it also spills over for use by third party firms, often-new ventures (Azoulay and Shane, 2001 and Archibald, Thomas Betts and Johnston, 2002).
The purpose of this paper is to propose and test a new theory of entrepreneurship that bridges the gap between the entrepreneurship and economic literature on opportunity by developing a knowledge spillover theory of entrepreneurship. The creation of new knowledge gives rise to new opportunities; therefore, entrepreneurial activity does not involve simply the arbitrage of opportunities but also the exploitation of new ideas not appropriated by incumbent firms (Kirzner, 1973). The theory builds on the work of the early Schumpeter (1911 [1934]) who recognized the importance of the entrepreneur in exploiting opportunities but did not pay attention to where opportunities come from. Romer (1986) recognized and modeled the importance of technology and knowledge spillovers. This Romerian insight cast the early Schumpeter in a new light by raising two questions: first, Where do opportunities come from? And second, How are they discovered and exploited?
The paper is organized as follows. In the next section we discuss the nature of the individual opportunity nexus. In the third section we examine the question, Where do opportunities come from. There are many theories of entrepreneurship but none that focus on the role of knowledge and knowledge spillovers as an explanation of opportunity. We explore several prevailing theories of entrepreneurship and the evidence that supports them. We then present our own knowledge spillover theory of entrepreneurship and test an empirical model over the period 1981-2000. Our empirical results show that entrepreneurial activity is strongly influenced by knowledge spillovers from incumbent firms. An implication of our analysis is that it is important to understand what it is that gives rise to new opportunities for entrepreneurs.
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