Tag Archives: social networks

The shape and structure of entrepreneurial and innovative places

Geoffrey Borchhardt and Olav Sorenson

Interactions primarily occur between those living and working in close proximity to one another. This essay explores some consequences of that fact for places. It offers three principle propositions: (1) Compact buildings, neighborhoods, and cities, and denser places, should promote higher rates of entrepreneurship, innovation, and economic growth because they reduce the costs of interaction. (2) More integrated places should also promote entrepreneurship and innovation because the average person in those places interacts with a more diverse set of others. (3) In more segregated and unevenly distributed places, people diverge more, as a function of where within the place they live and work, in their propensities to innovate and to found firms.

Social networks and the geography of entrepreneurship

Print version of Prize Lecture for the Global Award for Entrepreneurship Research, 2018

Olav Sorenson

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.

Small Business Economics, 51 (2018): 527-537 (OPEN ACCESS)

Innovation policy in a networked world

Olav Sorenson

Social relationships channel information, influence, and access to scarce resources. As a consequence, social networks—-the patterns of these relationships across the members of a community—-influence who comes up with important innovations, whether and how rapidly those innovations get adopted, and who has the ability to commercialize them. They therefore also affect the overall rate at which innovation occurs in the economy. This paper provides an introduction to and review of the research on social networks most relevant to innovation, with a particular focus on the earliest stages of the innovation process. It then discusses the likely consequences of a variety of policy interventions that could either reduce the importance of social relationships to innovation or alter the patterns of relationships in ways that might promote innovation.

Innovation Policy and the Economy, 18 (2018): 53-77

NBER Working Paper Preprint

Regional ecologies of entrepreneurship

Olav Sorenson

Why do some regions produce more entrepreneurs than others? An ecological lens provides insight into this question: The demography of organizations in a region – particularly the proportion of small and young em- ployers – shapes many aspects of the environment for would-be entrepreneurs: (i) beliefs about the desirability of founding a firm, (ii) opportunities to learn about entrepreneurship and to build the abilities needed to succeed, and (iii) the ease of acquiring critical resources. Births of new industries and the demise of mature ones can therefore catalyze rapid changes in the rates of entrepreneurship that become self-reinforcing.

Journal of Economic Geography, 17 (2017): 959-974

Community and capital in entrepreneurship and economic growth

Sampsa Samila and Olav Sorenson

We argue that social and financial 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 social integration – in the microgeography of residential patterns – moderates the effect of venture capital, with more integrated regions benefitting more from expansions in the supply of financial capital. Our results remain robust to estimation with an instrumental variable to address potential endogeneity in the geography of venture capital. We also find some evidence for a similar effect from business associations. Our findings support the idea that social structure may contribute importantly to regional economic differences.

American Sociological Review, 82 (2017): 770-795

Summarized in Yale Insights

Video summary from Yale Insights

Entrepreneurs and social capital in China

Olav Sorenson

Does social capital operate differently in China? A long and vibrant literature on the concept of guanxi suggests not only that social capital might have a different character in China but also that it might prove more valuable there to employees and entrepreneurs alike. Drawing on unusually high quality data on Chinese executives, Burt and Burzynska (2017) explore the question of whether the same structural configurations of relationships appear associated with success in China as have been found in the West. Their short answer is yes. In this response, I comment on their article.

Management and Organization Review, 13 (2017): 275-280

(When) do organizations have social capital?

Olav Sorenson and Michelle Rogan

Interorganizational relationships connect people affiliated with organizations rather than corporate actors themselves. The managers and owners of organizations therefore do not always control these connections and consequently often cannot profit from them. We discuss the circumstances under which individuals (versus organizations) “own” these relationships (and therefore also the social capital generated by them). Three factors increase the odds of individual ownership: (i) the extent to which the resources valued by alters belong to the individual (rather than the organization), (ii) the degree to which alters feel greater indebtedness to the individual than the organization, and (iii) the extent to which relationships involve emotional attachment. We discuss the implications of the locus of ownership, argue that these distinctions can help to explain many results that appear inconsistent on the surface, and call for future research to pay closer attention to these issues.

Annual Review of Sociology, 40 (2014): 261-280

Picking a (poor) partner: A relational perspective of acquisitions

Michelle Rogan and Olav Sorenson

Numerous studies have found that mergers and acquisitions destroy value. What might account for these poor decisions? Using comprehensive data from the advertising industry, we found that the probability of being acquired rose but that the performance of merged entities declined – both losing clients and selling less to the clients retained – with the number of common clients (indirect ties) connecting the target to the acquirer. Two potential mechanisms could account for this pattern of results. Either managers hold (positively) biased beliefs about those connected to them through common clients, or they restrict their searches for potential acquisition partners to those they already know, despite the disadvantages of doing so.

Administrative Science Quarterly, 59 (2014): 301-329

Home sweet home: Entrepreneurs’ location choices and the performance of their ventures

Michael S. Dahl and Olav Sorenson

Entrepreneurs, even more than employees, tend to locate in regions in which they have deep roots. Here, we examine the performance implications of these choices. Whereas one might expect entrepreneurs with deep roots to perform better because of their richer endowments of social capital, they might also perform worse if their location choices rather reflect a preference for spending time with family and friends. We examine this question using comprehensive data on the Danish population. Entrepreneurs’ ventures perform better – survive longer and generate greater cash flows and cumulative profits – when they locate in regions in which they have deep roots (“home” regions). This effect appears substantial, similar in magnitude to the value of having prior experience in the industry entered (i.e. specific human capital).

Management Science, 58 (2012):1059-1071

 

The migration of technical workers

Michael S. Dahl and Olav Sorenson

Using panel data on the Danish population, we estimated the revealed preferences of scientists and engineers for the places in which they choose to work. Our results indicate that these technical workers exhibit substantial sensitivity to differences in wages but that they have even stronger preferences for living close to family and friends. The magnitude of these preferences, moreover, suggests that the greater geographic mobility of scientists and engineers, relative to the population as a whole, stems from more pronounced variation across regions in the wages that they can expect. These results remain robust to estimation on a sample of individuals who must select new places of work for reasons unrelated to their preferences—those who had been employed at establishments that discontinued operations.

Journal of Urban Economics, 67 (2010): 33-45