Perspectives, Measurement and Empirical Investigation
New Horizons in Regional Science series
Edited by Robert Stimson, Roger R. Stough and Peter Nijkamp
Chapter 8: A Theory of Entrepreneurial Rents in Endogenous Growth: Implications for Regional Innovation Policies
Zoltan Acs and Mark Sanders INTRODUCTION This chapter is about the role of rents and endogenous entry in economic growth – two issues we feel are not getting the attention they deserve in the modern literature on endogenous growth. When Romer (1990) presented his seminal article, his key contribution was to provide a private incentive for doing R&D. A positive knowledge spillover (in the tradition of Arrow, 1962) from current to future R&D then provided the mechanism for endogenous growth. But in his model he attributed the full rents of new entry to a specialized R&D sector that auctions off blueprints for innovations to entrepreneurs. Competition among the latter leaves no rents for them and their role is reduced to merely commercializing whatever the R&D sector comes up with. Aghion and Howitt (1992) on the other hand, put entry central in their Schumpeterian model of growth. Entrepreneurs appropriate the full rents to entry in their model, but Aghion and Howitt also have them do the R&D that generates the knowledge in a tournament. There they clearly deviate from Schumpeter who sees no role for the entrepreneur in opportunity creation (Schumpeter  1934). In that way Aghion and Howitt leave no rents to motivate R&D by firms who do not aim to enter the market with new varieties or higher-quality products. In fact they make a strong point to explain why incumbent firms do not engage in R&D. Both models are a huge improvement over...
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