Entrepreneurship, Innovation and
Public Policy: A Survey
Chinawut Chinaprayoon
Motivation
 Knowledge-based entrepreneurial economy to
sustain economic growth
 The emergence of “entrepreneurial policy...
Entrepreneurship and Innovation
 Shane and Venkataraman (2000) argues that
entrepreneurship involves the study of the sou...
The discovery of the residuals
 Innovation and entrepreneurship are regarded as residuals in
neoclassical orthodoxy liter...
Theory of Innovations
 Unit of analysis: firms
 Knowledge Production Function Paradigm (Griliches,
1979; Cohen and Klepp...
Heterodox Economics
 Boundedly rational / Sub-optimality can occur / Institutions play
crucial role
 Schumpeter (1934; 1...
Contemporary Theory of Entrepreneurship
 Unit of analysis: individuals
 Again, it is the process of opportunity discover...
Market Information
Entrepreneurial Mindset
Opportunity
Alertness
Action
(Innovation)
- Technical Knowledge
- Creativity
Ac...
Large firm advantage
Acs and Audretsch (2005); Ketchen, Ireland and Snow (2007)
 Entrepreneurial action/innovation requir...
Capital Market Imperfections
 Agency problems i.e. moral hazard and adverse
selection make financial institutions wary of...
Rules of Law/ Institutions
 Government should function in a market-augmenting way.
(Saravasthy, 2004)
 Baumol (1990;2002...
Baumol (1990;2002)
The results confirms Baumol’s hypothesis, better institutional quality
results in a higher level of productive entrepreneu...
Externalities
 Profit motive alone is inadequate to stimulate entrepreneurial
innovation. (Holtz-Eakin,2000)
 Audretsch ...
Entrepreneurial Policy
 It is not SMEs policy – it doesn’t aim at SMEs
survival (Audretsch, 2002)
 It is not innovation ...
Entrepreneurial Policy
 Audretsch (2002): Shifts in Entrepreneurial Policy
 From emphasizing on contracts (e.g. antitrus...
Entrepreneurial Policy
Acs and Szerb (2006)
 Global scale : Trade Policy, Immigration Policy
 National scale : Science, ...
Research Agenda
 How different levels/different types of public
policy/regulations affect individuals (entrepreneurs)?
 ...
Conclusions
 The reconciliation between theory of innovation (firm
as decision-making) and contemporary theory of
entrepr...
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Entrepreneurship innovation and public policy

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The survey of literature and directions of theories of entrepreneurship and innovation and public policy

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Entrepreneurship innovation and public policy

  1. 1. Entrepreneurship, Innovation and Public Policy: A Survey Chinawut Chinaprayoon
  2. 2. Motivation  Knowledge-based entrepreneurial economy to sustain economic growth  The emergence of “entrepreneurial policy”  Policy originates as a top-down process, while contemporary entrepreneurship literatures stress the vitality of building theory from bottom-up.
  3. 3. Entrepreneurship and Innovation  Shane and Venkataraman (2000) argues that entrepreneurship involves the study of the sources of opportunities; the processes of discovery, evaluation , and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them.  Given this description, the study of entrepreneurship is almost a tautology to the study of innovations, and to some degree – the study of process of creative destruction in Schumpeter’s language.  “Theory of innovation” VS “Theory of entrepreneurship”
  4. 4. The discovery of the residuals  Innovation and entrepreneurship are regarded as residuals in neoclassical orthodoxy literature. - unrealistic  “innovation” was put back into the equation. (Romer,1990; 1994) – the endogenous growth theory  Only recently that entrepreneurship is still explicitly accounted in growth theory  Michelacci (2003): technological change requires both researchers who produce inventions and an entrepreneur who transform them into innovations.
  5. 5. Theory of Innovations  Unit of analysis: firms  Knowledge Production Function Paradigm (Griliches, 1979; Cohen and Klepper, 1991)  Opportunities are created endogenously  It works at aggregated level, but it is less compelling when studied at micro level. (Acs and Audretsch, 1990)
  6. 6. Heterodox Economics  Boundedly rational / Sub-optimality can occur / Institutions play crucial role  Schumpeter (1934; 1942): Entrepreneur as the Innovator / constantly disequilibrium due to creative destruction  Kirzner (1973, 1997): Entrepreneurship is equilibrating forces/ Entrepreneurs act on new profit opportunities  “Systems theorists” focus on agent (innovator/entrepreneur), institutions and their interactions and how each component of the systems coevolves.  Model of technology disruptions (Christensen, Dosi, Utterback, etc.) – New ventures are source of technological changes / but how new ventures formed is still a big question mark.
  7. 7. Contemporary Theory of Entrepreneurship  Unit of analysis: individuals  Again, it is the process of opportunity discovery, opportunity evaluation and opportunity exploitation  Dominant paradigm of innovation theory focuses on how opportunities are created  Theories of innovation and entrepreneurship should be considered as a compliment to each other – bridging the missing link
  8. 8. Market Information Entrepreneurial Mindset Opportunity Alertness Action (Innovation) - Technical Knowledge - Creativity Action (Innovation) Value Appropriation (Wealth Creation) Burgelman & Hitt, 2007
  9. 9. Large firm advantage Acs and Audretsch (2005); Ketchen, Ireland and Snow (2007)  Entrepreneurial action/innovation requires high fixed costs (Scale economies)  Scope economies  Small firms bear higher risk/ have relatively limited strategic resources
  10. 10. Capital Market Imperfections  Agency problems i.e. moral hazard and adverse selection make financial institutions wary of new ventures with limited track records (Acs et al, 2001)  Venture capital investment funds are simply flowing to states with already well-established entrepreneurial activity (Kreft and Sobel, 2005)
  11. 11. Rules of Law/ Institutions  Government should function in a market-augmenting way. (Saravasthy, 2004)  Baumol (1990;2002) – Productive entrepreneurship/Unproductive entrepreneurship  “Productive entrepreneurship in the free market economies, then, has been encouraged materially by contraction of the opportunities for financial gain through rent seeking and destructive activities, and by the simultaneously explosion of ways of wealth-gathering in productive occupations. Productive entrepreneurship has also be stimulated by the growing power of rules of law and concomitant upon arbitrary exercise of government power” (Baumol, 2002:p. 10)  Sobel (2008) tested Baumol’s hypothesis using data from 48 states
  12. 12. Baumol (1990;2002)
  13. 13. The results confirms Baumol’s hypothesis, better institutional quality results in a higher level of productive entrepreneurial activity.
  14. 14. Externalities  Profit motive alone is inadequate to stimulate entrepreneurial innovation. (Holtz-Eakin,2000)  Audretsch (2002)  Network externalities  Individual and firm capabilities conditioned upon the geographic proximity of complimentary firms and individuals  Knowledge externalities  Even entrepreneurs fail, they still generate externality  Learning externalities  Demonstration effect/ In particular in the geographical area where entrepreneurial tradition is absent.
  15. 15. Entrepreneurial Policy  It is not SMEs policy – it doesn’t aim at SMEs survival (Audretsch, 2002)  It is not innovation policy – as innovation policy aims at fulfilling lacks of investment in innovation.  Entrepreneurship policy aims at influencing the level of entrepreneurial vitality (Audretsch, 2002) It encompasses different types/aspects of policies, which usually uncoordinated (Hart, 2003)  Entrepreneurship policy aims at potential entrepreneur as well as the existing enterprises.  Entrepreneurship policy encompasses multiple units of organization and analysis.
  16. 16. Entrepreneurial Policy  Audretsch (2002): Shifts in Entrepreneurial Policy  From emphasizing on contracts (e.g. antitrust policy) to emphasizing on the creation and commercialization of knowledge.  Downsizing policy focus – from federal to state, regional, local, and firm level – even individual  Number of scholars from distinct disciplines support the policy focuses on local/regional development and address the vital role of entrepreneurship, among these are Porter, Florida and Krugman
  17. 17. Entrepreneurial Policy Acs and Szerb (2006)  Global scale : Trade Policy, Immigration Policy  National scale : Science, Technology and Innovation Policy, Property Rights Regulation  Regional scale : Cluster development e.g. Research Triangle  Entrepreneurial scale : Financial supports, tax policy But as Hart (2003) these policy are usually uncoordinated.  It may turn to be barriers to entrepreneurship & innovation
  18. 18. Research Agenda  How different levels/different types of public policy/regulations affect individuals (entrepreneurs)?  Do policies complement, substitute or confound with each other?  Use a integrated theoretical framework to develop matrices for policy formulation/implementation/evaluation
  19. 19. Conclusions  The reconciliation between theory of innovation (firm as decision-making) and contemporary theory of entrepreneurship (individual as decision-making) provides a multilevel perspective for policymaker to think about what and how policy should be formulated, implemented, and evaluated. (Using entrepreneurship as a unit of analysis in addition to innovation)

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