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Tacit knowledge with innovative entrepreneurship

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 p...

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Bibliographic Details
Published in:International journal of industrial organization 2012-11, Vol.30 (6), p.641-653
Main Author: Spulber, Daniel F.
Format: Article
Language:English
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Summary: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. ► Tacit knowledge affects the trade-off between entrepreneurship and technology transfer. ► An inventor with tacit knowledge obtains own-use benefits through entrepreneurship. ► Major inventions tend to result in entrepreneurship and minor inventions in technology transfer. ► R&D and absorptive capacity are strategic substitutes in the innovation game. ► Entrepreneurship is less likely with higher R&D costs and lower technology transfer costs.
ISSN:0167-7187
1873-7986
DOI:10.1016/j.ijindorg.2012.07.004