Knowledge spillover
Encyclopedia
Knowledge spillover is an exchange of ideas among individuals. In knowledge management
economics
, a knowledge spillover is a non-rival
knowledge market
externality
that has a spillover effect
of stimulating technological improvements in a neighbor through one's own innovation. Such innovations often come from specialization within an industry.
A recent, general example of a knowledge spillover could be the collective growth associated with the research and development
of online social networking tools like Facebook
, Youtube
, and Twitter
. Such tools have not only created a positive feedback loop, and a host of originally unintended benefits for their users, but have also created an explosion of new software, programming platforms, and conceptual breakthroughs that have perpetuated the development of the industry as a whole. The advent of online marketplaces, the utilization of user profiles, the widespread democratization of information, and the interconnectivity between tools within the industry have all been products of each tool’s individual developments. These developments have since spread outside the industry into the mainstream media as news and entertainment firms have developed their own market feedback applications within the tools themselves, and their own versions of online networking tools (e.g. CNN
’s iReport).
There are two kinds of knowledge spillovers: internal and external. Internal knowledge spillover occurs if there is a positive impact of knowledge between individuals within an organization that produces goods and/or services. An external knowledge spillover occurs when the positive impact of knowledge is between individuals without or outside of a production organization. Marshall-Arrow-Romer (MAR) spillovers, Porter spillovers and Jacobs spillovers are three types of spillovers.
MAR spillover has its origins in 1890, where the English
economist Alfred Marshall
developed a theory of knowledge spillovers. Knowledge spillovers later were extended by economists Kenneth Arrow
(1962) and Paul Romer
(1986). In 1992, Edward Glaeser
, Hedi Kallal, José Scheinkman
, and Andrei Shleifer
pulled together the Marshall-Arrow-Romer views on knowledge spillovers and accordingly named the view MAR spillover in 1992.
Under the Marshall-Arrow-Romer (MAR) spillover view, the proximity of firms within a common industry often affects how well knowledge travels among firms to facilitate innovation and growth. The closer the firms are to one another, the greater the MAR spillover. The exchange of ideas is largely from employee to employee, in that employees from different firms in an industry exchange ideas about new products and new ways to produce goods. The opportunity to exchange ideas that lead to innovations key to new products and improved production methods.
Business parks are a good example of concentrated businesses that may benefit from MAR spillover. Many semiconductor firms
intentionally located their research and development facilities in Silicon Valley
to take advantage of MAR spillover. In addition, the film industry
in Los Angeles, California
and elsewhere relies on a geographic concentration of specialists (directors
, producer
s, scriptwriter
s, and set designers) to bring together narrow aspects of movie-making into a final product.
However, research on the Cambridge IT Cluster (UK) suggests that technological knowledge spillovers might only happen rarely and are less important than other cluster benefits such as labour market pooling .
proximity of a Jacobs spillover brings together ideas among individuals with different perspectives to encourage an exchange of ideas and foster innovation in an industrially diverse environment.
Developed in 1969 by economists Jane Jacobs
and John Jackson the concept that Detroit
’s shipbuilding industry from the 1830s was the critical antecedent leading to the 1890s development of the auto industry in Detroit since the gasoline engine firms easily transitioned from building gasoline engines for ship to building them for automobiles.
. As the market cannot do this efficiently, public regulations have been implemented to facilitate a more appropriate equilibrium
.
As a result, the concept of intellectual property rights have developed and ensure the ability of entrepreneurs to temporarily hold on to the profitability of their ideas through patent
s, copyright
s, and other governmental safeguards. Conversely, such barriers to entry prevent the exploitation of informational developments by rival firms within an industry.
On the other hand, when the research and development of a private firm results in a social benefit, unaccounted for within the market price, often greater than the private return of the firm’s research, then a subsidy
to offset the underproduction of that benefit might be offered to the firm in return for its continued output of that benefit. Government subsidies are often controversial and while they might often result in a more appropriate social equilibrium, they could also lead to undesirable political repercussions as such a subsidy must come from taxpayers, some of whom may not directly benefit from the researching firm’s subsidized knowledge spillover.
Knowledge management
Knowledge management comprises a range of strategies and practices used in an organization to identify, create, represent, distribute, and enable adoption of insights and experiences...
economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, a knowledge spillover is a non-rival
Rivalry (economics)
In economics, rivalry is a characteristic of a good. A good can be placed along a continuum ranging from rivalrous to non-rival. The same characteristic is sometimes referred to as subtractable or non-subtractable . A rival good is a good whose consumption by one consumer prevents simultaneous...
knowledge market
Knowledge market
A knowledge market is a mechanism for distributing knowledge resources. There are two views on knowledge and how knowledge markets can function. One view uses a legal construct of intellectual property to make knowledge a typical scarce resource, so the traditional commodity market mechanism can be...
externality
Externality
In economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit...
that has a spillover effect
Spillover effect
Spillover effects are externalities of economic activity or processes that affect those who are not directly involved. Odours from a rendering plant are negative spillover effects upon its neighbours; the beauty of a homeowner's flower garden is a positive spillover effect upon neighbours.In the...
of stimulating technological improvements in a neighbor through one's own innovation. Such innovations often come from specialization within an industry.
A recent, general example of a knowledge spillover could be the collective growth associated with the research and development
Research and development
The phrase research and development , according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of...
of online social networking tools like Facebook
Facebook
Facebook is a social networking service and website launched in February 2004, operated and privately owned by Facebook, Inc. , Facebook has more than 800 million active users. Users must register before using the site, after which they may create a personal profile, add other users as...
, Youtube
YouTube
YouTube is a video-sharing website, created by three former PayPal employees in February 2005, on which users can upload, view and share videos....
, and Twitter
Twitter
Twitter is an online social networking and microblogging service that enables its users to send and read text-based posts of up to 140 characters, informally known as "tweets".Twitter was created in March 2006 by Jack Dorsey and launched that July...
. Such tools have not only created a positive feedback loop, and a host of originally unintended benefits for their users, but have also created an explosion of new software, programming platforms, and conceptual breakthroughs that have perpetuated the development of the industry as a whole. The advent of online marketplaces, the utilization of user profiles, the widespread democratization of information, and the interconnectivity between tools within the industry have all been products of each tool’s individual developments. These developments have since spread outside the industry into the mainstream media as news and entertainment firms have developed their own market feedback applications within the tools themselves, and their own versions of online networking tools (e.g. CNN
CNN
Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...
’s iReport).
There are two kinds of knowledge spillovers: internal and external. Internal knowledge spillover occurs if there is a positive impact of knowledge between individuals within an organization that produces goods and/or services. An external knowledge spillover occurs when the positive impact of knowledge is between individuals without or outside of a production organization. Marshall-Arrow-Romer (MAR) spillovers, Porter spillovers and Jacobs spillovers are three types of spillovers.
MAR spillover
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
economist Alfred Marshall
Alfred Marshall
Alfred Marshall was an Englishman and one of the most influential economists of his time. His book, Principles of Economics , was the dominant economic textbook in England for many years...
developed a theory of knowledge spillovers. Knowledge spillovers later were extended by economists Kenneth Arrow
Kenneth Arrow
Kenneth Joseph Arrow is an American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972. To date, he is the youngest person to have received this award, at 51....
(1962) and Paul Romer
Paul Romer
Paul Michael Romer is an American economist, entrepreneur, and activist. He is currently the Henry Kaufman Visiting Professor at New York University Stern School of Business and will be joining NYU as a full time professor beginning in 2011...
(1986). In 1992, Edward Glaeser
Edward Glaeser
Edward Ludwig "Ed" Glaeser is an economist at Harvard University. He was educated at The Collegiate School in New York City before obtaining his B.A. in economics from Princeton University and his Ph.D. in economics from the University of Chicago...
, Hedi Kallal, José Scheinkman
José Scheinkman
José Alexandre Scheinkman is a Brazilian-American mathematical economist, currently the Theodore A Wells '29 Professor of Economics at Princeton University. He spent the bulk of his career at the University of Chicago, where he served as department chair immediately prior to his departure for...
, and Andrei Shleifer
Andrei Shleifer
Andrei Shleifer is a Russian American economist. From its inauguration in 1992 until it was shut down in 1997, Shleifer served as project director of the Harvard Institute for International Developments Russian aid project...
pulled together the Marshall-Arrow-Romer views on knowledge spillovers and accordingly named the view MAR spillover in 1992.
Under the Marshall-Arrow-Romer (MAR) spillover view, the proximity of firms within a common industry often affects how well knowledge travels among firms to facilitate innovation and growth. The closer the firms are to one another, the greater the MAR spillover. The exchange of ideas is largely from employee to employee, in that employees from different firms in an industry exchange ideas about new products and new ways to produce goods. The opportunity to exchange ideas that lead to innovations key to new products and improved production methods.
Business parks are a good example of concentrated businesses that may benefit from MAR spillover. Many semiconductor firms
Semiconductor industry
The semiconductor industry is the aggregate collection of companies engaged in the design and fabrication of semiconductor devices. It formed around 1960, once the fabrication of semiconductors became a viable business...
intentionally located their research and development facilities in Silicon Valley
Silicon Valley
Silicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...
to take advantage of MAR spillover. In addition, the film industry
Film industry
The film industry consists of the technological and commercial institutions of filmmaking: i.e. film production companies, film studios, cinematography, film production, screenwriting, pre-production, post production, film festivals, distribution; and actors, film directors and other film crew...
in Los Angeles, California
Los Angeles, California
Los Angeles , with a population at the 2010 United States Census of 3,792,621, is the most populous city in California, USA and the second most populous in the United States, after New York City. It has an area of , and is located in Southern California...
and elsewhere relies on a geographic concentration of specialists (directors
Film director
A film director is a person who directs the actors and film crew in filmmaking. They control a film's artistic and dramatic nathan roach, while guiding the technical crew and actors.-Responsibilities:...
, producer
Film producer
A film producer oversees and delivers a film project to all relevant parties while preserving the integrity, voice and vision of the film. They will also often take on some financial risk by using their own money, especially during the pre-production period, before a film is fully financed.The...
s, scriptwriter
Screenwriter
Screenwriters or scriptwriters or scenario writers are people who write/create the short or feature-length screenplays from which mass media such as films, television programs, Comics or video games are based.-Profession:...
s, and set designers) to bring together narrow aspects of movie-making into a final product.
However, research on the Cambridge IT Cluster (UK) suggests that technological knowledge spillovers might only happen rarely and are less important than other cluster benefits such as labour market pooling .
Porter spillover
Porter (1990), like MAR, argues that knowledge spillovers in specialized, geographically concentrated industries stimulate growth. He insists, however, that local competition, as opposed to local monopoly, fosters the pursuit and rapid adoption of innovation. He gives examples of Italian ceramics and gold jewelry industries, in which hundreds of firms are located together and fiercely compete to innovate since the alternative to innovation is demise. Porter's externalities are maximized in cities with geographically specialized, competitive industries.Jacobs spillover
Under the Jacobs spillover view, the proximity of firms from different industries affect how well knowledge travels among firms to facilitate innovation and growth. This is in contrast to MAR spillovers, which focus on firms in a common industry. The diverseDiversity (business)
The "business case for diversity" stems from the progression of the models of diversity within the workplace since the 1960's. The original model for diversity was situated around affirmative action drawing strength from the law and a need to comply with equal employment opportunity objectives...
proximity of a Jacobs spillover brings together ideas among individuals with different perspectives to encourage an exchange of ideas and foster innovation in an industrially diverse environment.
Developed in 1969 by economists Jane Jacobs
Jane Jacobs
Jane Jacobs, was an American-Canadian writer and activist with primary interest in communities and urban planning and decay. She is best known for The Death and Life of Great American Cities , a powerful critique of the urban renewal policies of the 1950s in the United States...
and John Jackson the concept that Detroit
Detroit, Michigan
Detroit is the major city among the primary cultural, financial, and transportation centers in the Metro Detroit area, a region of 5.2 million people. As the seat of Wayne County, the city of Detroit is the largest city in the U.S. state of Michigan and serves as a major port on the Detroit River...
’s shipbuilding industry from the 1830s was the critical antecedent leading to the 1890s development of the auto industry in Detroit since the gasoline engine firms easily transitioned from building gasoline engines for ship to building them for automobiles.
Policy implications
As information is largely non-rival in nature, certain measures must be taken to ensure that, for the originator, the information remains a private assetAsset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
. As the market cannot do this efficiently, public regulations have been implemented to facilitate a more appropriate equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...
.
As a result, the concept of intellectual property rights have developed and ensure the ability of entrepreneurs to temporarily hold on to the profitability of their ideas through patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
s, copyright
Copyright
Copyright is a legal concept, enacted by most governments, giving the creator of an original work exclusive rights to it, usually for a limited time...
s, and other governmental safeguards. Conversely, such barriers to entry prevent the exploitation of informational developments by rival firms within an industry.
On the other hand, when the research and development of a private firm results in a social benefit, unaccounted for within the market price, often greater than the private return of the firm’s research, then a subsidy
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
to offset the underproduction of that benefit might be offered to the firm in return for its continued output of that benefit. Government subsidies are often controversial and while they might often result in a more appropriate social equilibrium, they could also lead to undesirable political repercussions as such a subsidy must come from taxpayers, some of whom may not directly benefit from the researching firm’s subsidized knowledge spillover.