1. Entrepreneurial Vision and Economic Growth Max Keilbach and Mark Sanders m.sanders@econ.uu.nl Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

2. Introduction Setting the Stage Outlines of the Model Conclusions and Policy Implications Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

3. Setting the Stage “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 for MPI in Jena, Germany Tuesday, December 14th, 2005

4. Setting the Stage Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005 “Drunk:Can you help me find my keys? Passerby:Sure, where did you drop them? Drunk:Way over there by the trash-can. Passerby:Then why are you looking over here? Drunk:The light is much better under the lamppost.“ Milton Friedman, Economics 331, Fall 1967 quoted from Darby and Zucker (2002), p.1

5. Setting the Stage Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005 Corporate R&D is the lamppost… -R&D aims at “perfective progress” -Growth follows cycles -Industry life-cycle dynamics …the keys to growth are in the trash-can. -Is there a role for Entrepreneurs? -What is it and what are the policy implications?

6. Outlines of the Model Economic Growth is a process: Stage 1: -Entrepreneurial Vision -Discovery of new products Stage 2: -Firm based R&D -Improvement on existing products Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

7. Outlines of the Model Set-Up: -standard LOV-preferences -monopolistic competition -rent-seeking drives R&D -2 types of R&D compete for R&D resources -type 1 (entrepreneurial R&D) discovers products -type 2 (firm R&D) develops existing products -all products face life cycle -arbitrage solves R&D allocation in Steady State Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

8. The Model Consumers Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

9. The Model Incumbent Producers Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

10. The Model Entrepreneurship Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

11. The Model Corporate R&D Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

12. The Model Equilibrium (static) Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

13. The Model Equilibrium (dynamic) Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005

14. The Model Equilibrium (dynamic) Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005 RSS NSS LSS N R L

15. The Model Policy Implications Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005 Corporate R&D is good for growth… …but it is not a sufficient or even a necessary precondition. Entrepreneurship is essential for long-term growth… …and is not a sufficient but a necessary precondition. Knowledge is the ultimate source of growth. Entrepreneurial vision makes opportunities out of knowledge. Entrepreneurship realizes opportunities. R&D “merely improves” upon realized opportunities. But makes most spectacular (measurable) contribution to growth.

16. Conclusions Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005 Entrepreneurship is key to the understanding of growth. It allows one to deal with many puzzles in growth. Modeling Entrepreneurship requires “vision” rather than new modeling techniques. Our model can help both the field of entrepreneurship research to focus it’s empirical work and inform progress in new growth theory and long-term economic policy.

17. Conclusions Presentation by Mark Sanders for MPI in Jena, Germany Tuesday, December 14th, 2005 We combined the public knowledge that was out there… …and had a vision that a nice paper could be written… …and set out to do it risking our reputation at MPI. Now it is up to the market (you) whether we fail or succeed… …to sell the idea that Entrepreneurship-theory enlightens… …the lost keys to growth. Thank you for your attention!