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Social relationships play at least three important roles in entrepreneurship. They help to determine who sees entrepreneurship as an available and desirable career path. Entrepreneurs use their contacts to raise funds for and to recruit employees and partners to their ventures. Social relationships also influence where and when entrepreneurs want to spend their leisure time. Because of these factors, entrepreneurs tend to found their firms in the places that they live (and in the industries in which they have been employed). That, in turn, implies that industries will tend to become and remain concentrated in a small number of places, even when firms do not benefit from this clustering.

We argue that social integration—in the sense of within-community interconnectedness—and venture capital have a complementary relationship in fostering innovation, entrepreneurship, and economic growth. Using panel data on metropolitan areas in the United States from 1993 to 2002, our analyses reveal that racial integration—in the microgeography of residential patterns—moderates the effect of venture capital, with more ethnically-integrated places benefiting more from venture capital. We provide evidence for the underlying mechanisms by demonstrating that communities with higher levels of racial integration foster the discovery of more novel and more valuable inventions and the emergence of more ethnically-diverse entrepreneurial groups.

The authors analyze Danish registry data from 1991 to 2006 to determine how firm age and firm size influence wages. Unadjusted statistics suggest that smaller firms paid less than larger firms paid, and that firm age had little or no bearing on wages. After adjusting for differences in the characteristics of employees hired by these firms, however, they observe both firm age and firm size effects. Larger firms paid more than did smaller firms for observationally equivalent individuals but, contrary to conventional wisdom, younger firms paid more than older firms. The size effect, however, dominates the age effect. Thus, although the typical start-up—being both young and small—paid less than a more established employer, the largest start-ups paid a wage premium.

We find that the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to states that enforce noncompete covenants, an increase in the local supply of venture capital in states that restrict the scope of these agreements has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment. We address potential endogeneity in the supply of venture capital by using endowment returns as an instrumental variable. Our results point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and economic growth. This paper was accepted by Gérard P. Cachon, entrepreneurship and innovation.

Crowdfunding attracts venture capital to new regions Crowdfunding (CF) platforms, such as Kickstarter (KS), offer a means of funding innovation, connecting inventors and entrepreneurs with a multitude of supporters, who each provide a small fraction of the amount required to fund the project. Although considerable funding for innovation has historically come from venture capitalists (VCs), the entrepreneurs funded by VCs often mirror the investors in terms of their educational, social, and professional characteristics and end up concentrated in a small number of regions ( 1 – 4 ). Policy-makers have thus hailed CF platforms, hoping that they will expand access to entrepreneurial finance, including among women and minority innovators, and that the innovations funded will create jobs and spur economic growth ( 5 ). But if particular regions, or certain sorts of individuals, routinely produce better ideas ( 6 ), and VC concentrates on them, then CF might simply compete with professional investors to fund the same ideas. We find, however, that CF has been funding innovators in a large number of places that have typically been excluded from VC, and has also been expanding the geographic reach of VC itself.

A large body of work argues that scientific research increases the rate of technological advance, and with it economic growth. The precise mechanism through which science accelerates the rate of invention, however, remains an open question. Conceptualizing invention as a combinatorial search process, this paper argues that science alters inventors' search processes, by leading them more directly to useful combinations, eliminating fruitless paths of research, and motivating them to continue even in the face of negative feedback. These mechanisms prove most useful when inventors attempt to combine highly coupled components; therefore, the value of scientific research to invention varies systematically across applications. Empirical analyses of patent data support this thesis.

Most existing theories of relationship formation imply that actors form highly cohesive ties that aggregate into homogenous clusters, but actual networks also include many “distant” ties between parties that vary on one or more social dimensions. To explain the formation of distant ties, we propose a theory of relationship formation based on the characteristics of “settings,” or the places and times in which actors meet. We posit that organizations form relations with distant partners when they participate in two types of settings: unusually faddish ones and those with limited risks to participants. In an empirical analysis of our thesis in the formation of syndicate relations between U.S. venture capital firms from 1985 to 2007, we find that the probability that geographically and industry distant ties will form between venture capital firms increases with several attributes of the target-company investment setting: (1) the recent popularity of investing in the target firm's industry and home region, (2) the target company's maturity, (3) the size of the investment syndicate, and (4) the density of relationships among the other members of the syndicate.

We examined the usefulness (precision) and completeness (recall) of the Author-ity author disambiguation for PubMed articles by associating articles with scientists funded by the National Institutes of Health (NIH). In doing so, we exploited established unique identifiers-Principal Investigator (PI) IDs-that the NIH assigns to funded scientists. Analyzing a set of 36,987 NIH scientists who received their first R01 grant between 1985 and 2009, we identified 355,921 articles appearing in PubMed that would allow us to evaluate the precision and recall of the Author-ity disambiguation. We found that Author-ity identified the NIH scientists with 99.51% precision across the articles. It had a corresponding recall of 99.64%. Precision and recall, moreover, appeared stable across common and uncommon last names, across ethnic backgrounds, and across levels of scientist productivity.

A growing body of research documents the role that organizational learning plays in improving firm performance over time. To date, however, this literature has given limited attention to the effect that the internal structure of the firm can have on generating differences in these learning rates. This paper focuses on the degree to which interdependence—and in particular one structural characteristic that generates interdependence, vertical integration—affects organizational learning. Firms face a trade–off. In stable environments, vertically integrating severely limits the organization's ability to learn by doing because boundedly rational managers find the optimization of operations difficult when making highly interdependent choices. As the volatility of the environment increases though, integration can facilitate learning–by–doing by buffering activities within the firm from instability in the external environment. Thus, firms with a high degree of interdependence suffer less in these environments. Tests of these hypotheses on the growth and exit rates of computer workstation manufacturers support this thesis.

This study uses data on the U.S. film industry from 1982 to 2001 to analyze the effects on box office performance of prior relationships between film producers and distributors. In contrast to prior studies, which have appeared to find performance benefits to both buyers and sellers when exchange occurs embedded within existing social relations, we propose that the apparent mutual advantages of embedded exchange can also emerge from endogenous behavior that benefits one party at the expense of the other: actors offer better terms of trade and allocate more resources to transactions embedded within existing social relations, thereby contributing to the ostensible advantages of such exchange patterns. Findings show that not only do distributors exhibit a preference for carrying films involving key personnel with whom they had prior exchange relations, but also they tend to favor these films when allocating scarce resources (opening dates and promotion effort). After controlling for the effects of these decisions, films with deeper prior relations to the distributor perform worse at the box office. The results suggest that, rather than benefiting from repeated exchange, distributors overallocate scarce resources to these prior exchange partners, enacting a self-confirming dynamic.