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Tacit knowledge with innovative entrepreneurship

  • Spulber, Daniel F.

Tacit knowledge affects the trade-off between entrepreneurship and technology transfer. I present a formal model in which an inventor and the existing firm engage in a strategic innovation game by choosing whether to compete or to cooperate through technology transfer. The model highlights how the problem of tacit knowledge affects the inventor's R&D investment and the existing firm's investment in absorptive capacity. The inventor's tacit knowledge implies that benefits from own-use through entrepreneurship can exceed the benefits from technology transfer. In equilibrium, higher-quality inventions result in entrepreneurship and lower-quality inventions result in technology transfer. R&D investment and absorption investment are strategic substitutes in the innovation game with the option of entrepreneurship. The possibility of entrepreneurship increases R&D investment and reduces absorption investment. The equilibrium probability of entrepreneurship is decreasing in the costs of R&D, increasing in the costs of absorption, and decreasing in the set-up costs of new firms.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 6 ()
Pages: 641-653

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Handle: RePEc:eee:indorg:v:30:y:2012:i:6:p:641-653
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