Presentation by Mark Sanders Slide 1 of 15 Scientists, Entrepreneurship and Growth Theory Mark Sanders Tjalling C. Koopmans Institute Utrecht School of Economics Max Planck Institute for Economics m.sanders@econ.uu.nl Presentation by Mark Sanders Slide 1 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 2 of 15 Motivation Growth Theory as it is Knowledge to Opportunities to Ideas The Ultimate Source of Growth The Structure of Scientific (R)evolution Growth Theory as it should be Presentation by Mark Sanders Slide 2 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 3 of 15 Motivation “It has long been recognized that the entrepreneurial function is a vital component in the process of economic growth” , Baumol (1968), p. 65. Modern Growth Literature… -VE-models (Romer 1990) -QL-models (Aghion and Howitt 1991) -Equivalence (Grossmann and Helpman 1991) …suggests (corporate) R&D is key to growth. Presentation by Mark Sanders Slide 3 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 4 of 15 Growth Theory as it is Rents in Product Markets Corporate R&D New Products Old Ideas Presentation by Mark Sanders Slide 4 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 5 of 15 Introducing Entrepreneurs Rents in Product Markets Entrepreneurs Knowledge Filter ? New Products (New) Knowledge ? Presentation by Mark Sanders Slide 5 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 6 of 15 Introducing Entrepreneurs Pieces of Knowledge + E. Vision and Talent= Commercial Opportunity Presentation by Mark Sanders Slide 6 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 7 of 15 The Ultimate Source Knowledge constitutes Ideas/Opportunities Experience generates pieces of new Knowledge Science generates pieces of new Knowledge What drives Scientists to do so? Reputations Causing Paradigms Normal Science vs. Scientific Crisis Presentation by Mark Sanders Slide 7 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 8 of 15 Scientific (R)evolutions A Model of Science Driven Growth where function f(.) is the knowledge filter and nP-n is the universe of opportunities. New products is then proportional to the number of unexploited opportunities and depends on the level of entrepreneurial R&D. This activity is profit driven. Presentation by Mark Sanders Slide 8 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 9 of 15 Scientific (R)evolutions A Model of Scientific Activity where function g(.) captures the role of entrepreneurial vision and talent. Opportunities are recognized and combine a number of scientific ideas. It is therefore positive in the stock of scientific ideas. Presentation by Mark Sanders Slide 9 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 10 of 15 Scientific (R)evolutions Normal Scientific Activity f(0)=0, f’(.)>0, f”(.)<0, 0<α<1 and β>1 Presentation by Mark Sanders Slide 10 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 11 of 15 Scientific (R)evolutions Crisis Scientific Activity Alternative Paradigms Presentation by Mark Sanders Slide 11 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 12 of 15 Scientific (R)evolutions Paradigm Switching θ(t)=ψ(At/Kt)*φ(At)*Pr(KA0>Kt) Presentation by Mark Sanders Slide 12 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 13 of 15 Scientific (R)evolutions Problems I II III KIII0 Kt KII0 At KI0 Presentation by Mark Sanders Slide 13 of 15 Thursday, October 25th, 2007 Time

Presentation by Mark Sanders Slide 14 of 15 Scientific (R)evolutions Presentation by Mark Sanders Slide 14 of 15 Thursday, October 25th, 2007

Presentation by Mark Sanders Slide 15 of 15 A new Growth Theory? In Short: With Entrepreneurs centre stage, Growth dynamics may change!! Presentation by Mark Sanders Slide 15 of 15 Thursday, October 25th, 2007