Clusters of Entrepreneurship and Innovation, William Kerr

Clusters of Entrepreneurship and Innovation, William Kerr

• 1.
  Clusters of Entrepreneurshipand Innovation William Kerr
• 2.
  “Smokestack Chasing”
• 3.
  “Be the nextSilicon Valley”
• 4.
  Agenda •Entrepreneurship ->growth (?) •Experimentation •Externalities matter •Entrepreneurial clusters in 2 minutes •Evidence on traits of places •Effective policy?
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  Fig. 1: Cityemployment growth and initial entrepreneurship Cross-sectional plots of urban growth 1982-2002 vs. initial traits
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  Driving City Growth? Correlation Causal High-growth entrepreneurship (VC) General entrepreneurship Innovation broadly defined Innovation breakthroughs
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  Experimentation’s Forms •“Entrepreneurshipas experimentation” –Darwinian view of markets –Sneaking away from Google
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  Experimentation’s Forms •“Entrepreneurshipas experimentation” –Darwinian view of markets –Sneaking away from Google •Experimental notions –Knightian uncertainty vs. risk –You don’t get to test everything! –Real options: expand the set of possible tests –VC economics and contractual structures
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  VC investments during1986- 1997 Matched sample Making Omelets: View from 2007 75% 66% 364% 67%
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  Experimentation’s Frictions •Costsof running experiments –Financial barriers, lean start-up, etc. –Non-financial costs like stigma of failure •Organizational frictions –“Throwing good money after bad” –Impartial decisions and length of commitments •Continuation and financing risk –Stability of future financing availability –Markets for ideas
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  Experimentation’s Consequences •Somegood news for policy makers –Entry barriers and financing competition –Bankruptcy law and rigid labor regulations –{Not yet to justifying active policy!} •Some worries for policy makers –Cowan avoided the garage… –The messy nature of “democratized” entry –Commitment can be hard but essential
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  Active Policy Rationale •Externalities –Build local tax base –Real externalities over firms •Redistribution –Fighting concentrated poverty (w/ focus on place) •Credit constraints –Credit market imperfections that limit start-ups
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  Clusters Abound
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  Fig. 4: Spatialconcentration of venture capital investments, 2011 Notes: Taken from Martin Prosperity Institute's Zara Matheson and based upon PWC MoneyTree data.
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  Issues on Clusters
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  Uneven Entrepreneurship Whatdo entrepreneurial places possess? •Education + age structure + “supply” –Physical infrastructure likely important too •Strong link to industrial structure of city •Role for high-skilled immigrants in US •Appears that local spillovers are quite confined by distance, demographics, and similar… •Networks matter a lot for the shape of clusters
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  Agenda •Entrepreneurship ->growth (?) •Experimentation •Externalities matter •Entrepreneurial clusters in 2 minutes •Evidence on traits of places •Effective policy?
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  Fig. 2: Dimensionsof government policy Degree of specificity towards industries and firms Degree of specificity towards locations General Industries/sectors Firms National and state City and county Neighbor- hood
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  Policy Types •Increase“local supply” •Direct subsidies and assistance •Lowering the costs of starting/failing •Regional cluster initiatives •Local innovation clusters •Don’t kill dynamics!
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  Wrapping Up •Policyroles for entrepreneurship –Nuanced economic theory, unknown parameters –Accumulating empirical perspective •Policy advice is very early-stage –Don’t forget the basics! Clear role… –For the rest, we need lots of experiments –Proper design and evaluation critical