Knowledge spillover theory of entrepreneurship

What is the knowledge spillover theory of entrepreneurship?

The knowledge spillover theory suggests that productive innovation comes from both incumbents (established firms) and new entrants (entrepreneurs and their organizations) (Acs et al., 2009; Audretsch and Lehmann, 2005).

Knowledge is inherently leaky, and moves through networks and via stakeholder mobility. This is probably a good assumption given that many organizations find it very difficult to keep secrets. Whistleblowers, for example, demonstrate the limits secrecy when they leak information that is damning to their employers.

Knowledge spillovers are considered to be the main sources of economic growth and development because they are sources of entrepreneurial opportunities. Entrepreneurship is about making new combinations, but the source of raw material for the combinations have to come from somewhere.

Knowledge can leak from organizations in the form of spinouts (employees turned entrepreneurs), or when employees leave to work for other organizations (including direct competitors). They can also flow through explicit knowledge transfers (e.g., publications and patents).

When incumbents are efficient at exploiting the knowledge they create, then there are fewer opportunities for new entrants (Agarwal et al., 2010). However, inefficient use of knowledge by incumbents causes it to leak out of those organizations making it possible for new entrants to utilize it. For instance, incumbents often invest in innovations that they do not subsequently utilize because they may deem the innovations to be counter to their firms’ interests.

Innovations can cannibalize sales or reduce the value of a firms’ assets and resources, or threaten margins. As a result, employees who want to pursue innovations that are not supported by the parent firm may decide to leave to join other firms or to start new ventures.

Many organizational actions and policies can be viewed as attempts suppress knowledge spillovers. For example, compensation schemes, non-compete contracts and intellectual property rights often make it difficult for entrepreneurs to utilize knowledge spillovers in their new ventures.

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Acs, Z. J., Braunerhjelm, P., Audretsch, D. B., and Carlsson, B. (2009). The knowledge spillover theory of entrepreneurship. Small business economics, 32(1), 15-30.

Agarwal, Rajshree, David Audretsch, and M. B. Sarkar. "Knowledge spillovers and strategic entrepreneurship." Strategic Entrepreneurship Journal 4, no. 4 (2010): 271-283.

Audretsch, D. B. and Lehmann, E. E. (2005). Does the knowledge spillover theory of entrepreneurship hold for regions?. Research Policy, 34(8), 1191-1202.