Edited by Rolf Wüstenhagen and Robert Wuebker
Chapter 2: Market Failure, Market Dynamics and Entrepreneurial Innovation by Environmental Ventures
Elizabeth Garnsey, Nicola Dee and Simon Ford 1 INTRODUCTION Entrepreneurial innovation is now recognized as an engine of change in the economy. Yet new entrant firms have made little innovative impact in utilities, construction, transport and heavy industry sectors, the major contributors to carbon emissions. Nor have larger companies in these sectors been able to innovate radically in the face of pressures to maintain short-term rates of return on capital.1 There is new interest from investors2 and policy makers3 in environmental ventures as changes unfold in the environmental arena. Academic work reflects awareness of these changes. For example, it has been argued that the prevalence of market failure provides a basis for viewing high carbon sectors as fertile with opportunities for entrepreneurs (Dean and McMullen, 2002, 2007; Cohen and Winn, 2007). This attention to environmental ventures is promising and suggests a new research agenda. But the neoclassical theory on which this recent work draws does not distinguish between market failures that obstruct entrepreneurs and those that provide a source of opportunity: both are attributed to the failure of perfect competition. To understand whether and how market failure provides business opportunities from environmental innovation, evidence is needed on the experience of enterprises launching innovative environmental technologies. Evidence can help operationalize constructs by showing what instances of market failures they encounter and how these affect their prospects. To have an impact on carbon emissions and their mitigation, a new company must not only commercialize environmental technology but grow the business sufficiently to...
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