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Clusters of Entrepreneurship and Innovation
Aaron Chatterji, Duke University
Edward L. Glaeser, Harvard University and NBER
William R. Kerr, Harvard University and NBER

Chatterji, Glaeser, and Kerr review recent academic work on the spatial concentration in the United States of entrepreneurship and innovation. They discuss rationales for the agglomeration of these activities and the economic consequences of clusters. They identify and discuss policies that are being pursued in the United States to encourage local entrepreneurship and innovation from both national and local perspectives. While arguments exist for and against policy support of entrepreneurial clusters, their understanding of what works and how it works is quite limited. The best path forward involves extensive experimentation and careful evaluation.


This paper was distributed as Working Paper 19013, where an updated version may be available.

Crowdfunding and Innovation
Ajay K. Agrawal, University of Toronto and NBER
Christian Catalini, Massachusetts Institute of Technology
Avi Goldfarb, University of Toronto and NBER

It is not surprising that the financing of early-stage creative projects and ventures is typically geographically localized because these types of investment decisions usually are predicated on personal relationships and due diligence, which require face-to-face interactions in response to high levels of risk, uncertainty, and information asymmetry. So, to economists, the recent rise of crowdfunding -- raising capital from many people through an online platform -- which offers little opportunity for careful due diligence and involves not only friends and family but also many strangers from near and far, is initially startling. On the eve of launching equity-based crowdfunding, a new market for early-stage finance in the United States, Agrawal, Catalini, and Goldfarb provide a preliminary exploration of its underlying economics. They highlight the extent to which economic theory, in particular transaction costs, reputation, and market design can explain the rise of non-equity crowdfunding, and offer a framework for speculating on how equity-based crowdfunding may unfold. They conclude by articulating open questions related to how crowdfunding may affect social welfare and the rate and direction of innovation.

We draw inspiration from Tirole and Lerner (2002) for our title as well as approach to presenting the subject matter.


by relaxing various restrictions concerning the sale of securities.2 However, the primary purpose of the Securities Act of 1933, which is the basis for most of the regulations in question, is to protect investors. Thus, relaxing these restrictions raises the concern that crowdfunding will expose investors to risk from fraud or incompetence (Hazen, 2012; Griffin, 2012). In the case of the Pebble, for example, despite disappointed and vocal funders, the Christmas season came and went without a single unit shipped or even produced. Although the well-intentioned inventor posted regular updates on his progress as he sourced components from vendors around the globe and set up a production facility in China, he was not able to fully fill his crowdfunded orders until April 2013. Anticipating these types of problems (and worse), the JOBS Act stipulated that equity crowdfunding required rules be set by the Securities and Exchange Commission (SEC), which were anticipated for January 2013 but are still in progress as of this writing. These two events in April 2012, the signing of the JOBS Act and the financing of the Pebble, legislated and demonstrated an innovation in the market for early-stage finance that could have significant economic consequences. Although the years of preamble leading to these events occurred primarily outside of mainstream attention, both events, particularly the former, raised general awareness of and interest in the potential of crowdfunding (Figure 1). Furthermore, although not mainstream and not equity-based, the early years of crowdfunding provide preliminary insight into the behavior of creators and funders. (For simplicity, we group entrepreneurs, artists, and others who initiate projects or ventures under the label "creators." We group investors, pre-buyers, and donors under the label "funders.") Crowdfunding developed primarily in the arts and creativity-based industries (e.g., recorded music, film, video games). Likely due to the network effects in this setting (to creators, the value of a platform increases with the number of funders and to funders the value of a platform increases with the number of creators and other funders), and similar to other online markets (e.g., eBay), crowdfunding has historically been dominated by a single platform. Originally, that was Sellaband, a music-only platform founded in 2006 and based in Amsterdam, and subsequently it was Kickstarter, a broader creative projects platform founded in 2009 and based in New York (we plot the growth of Kickstarter in Figure 2). Neither platform allows creators to issue equity for funding, although Sellaband did facilitate revenue sharing with funders during its first three years of operation. Still, data collected from funding activities on these platforms may provide clues to the types of user behavior that will emerge in equity-based crowdfunding. In particular, early research on non-equity crowdfunding indicates that: 1. Funding is not geographically constrained - When Sellaband offered royalty sharing to investors, more than 86% of the funds came from individuals who were more than 60 miles away from the entrepreneur, and the average distance between creators and investors was approximately 3,000 miles (Agrawal, Catalini, and Goldfarb, 2011).


For example, the law relaxes restrictions on general solicitation of securities, eases SEC reporting requirements, and raises from 500 to 2,000 the number of shareholders a company may have and still remain private.


Piracy and Copyright Enforcement Mechanisms
Brett Danaher, Chapman University
Michael D. Smith, Carnegie Mellon University
Rahul Telang, Carnegie Mellon University

Much debate exists around the impact that illegal file sharing may have on the creative industries. Similarly, opinions differ regarding whether the producers of artistic works should be forced to deal with any weakening of intellectual property rights resulting from illegal file sharing or if governments should intervene to protect these rights. Danaher, Smith, and Telang seek to inform these questions by outlining what we do and do not know from existing research. They first discuss whether file sharing displaces sales of media goods and then discuss whether such displacement will lead to reduced incentives to produce new creative works. They continue by summarizing recent findings on what businesses can do to compete with piracy and the effectiveness of anti-piracy policies on encouraging consumers to migrate from illegal to legal consumption channels. They conclude by demonstrating that without additional empirical evidence, it will be difficult to determine the socially optimal set of strategies and government copyright policies in the digital era.


This paper was distributed as Working Paper 19150, where an updated version may be available.

The Data Revolution and Economic Analysis
Liran Einav, Stanford University and NBER
Jonathan D. Levin, Stanford University and NBER

Many believe that "big data" will transform business, government, and other aspects of the economy. Here, Einav and Levin discuss how new data may impact economic policy and economic research. Large scale administrative datasets and proprietary private sector data can greatly improve the way we measure, track, and describe economic activity. They also can enable novel research designs that allow researchers to trace the consequences of different events or policies. The authors discuss some of the challenges in accessing and making use of these data. They also consider whether the big data predictive modeling tools that have emerged in statistics and computer science may prove useful in economics.





This paper was distributed as Working Paper 19035, where an updated version may be available.


Christopher Adams, Congressional Budget Office
Jeffrey Alexander, SRI International
Faye Anderson, "Tracking Change"
Anwar Aridi, George Washington University
Punit Arora, City University of New York
Suresh Balakrishnan, University System of Maryland
Brittany M. Bond, Massachusetts Institute of Technology
Mark Boroush, National Science Foundation
Tim Brennan, University of Maryland, Baltimore County
Shelia Campbell, Congressional Budget Office
Elias Carayannis, George Washington University
Julie Carlson, Federal Trade Commission
Sally Chan, Maryland Department of Health and Hygiene
Connie Chang, Consultant
Christopher Colford, The World Bank
Richard Conroy, National Institutes of Health
Paulo Correa, The World Bank
Kathleen DeBoer, Organisation for Economic Co-operation and Development
Edward Derrick, American Association for the Advancement of Science
Nicholas Eberstadt, American Enterprise Institute
Emil Friberg, Government Accountability Office
Matthew Gerdin, Department of State
Gary Guenther, Congressional Research Service
Anil K. Gupta, University of Maryland at College Park
Ravi Gupta, The World Bank
Laurel Haak, Mighty Red Barn
James Hansley, Hansley Associates, Inc.
David Hart, George Mason University
Brian Headd, Small Business Administration
Robert Hershey, Robert L. Hershey, P.E.
Justin J. Hicks
Derek Hill, National Science Foundation
Victoria Hill
Cassandra Ingram, Bureau of the Census
Mariel John, University of Maryland
Gary Jones, Federal Laboratory Consortium for Technology Transfer
James Kadtke, National Nanotechnology Coordinating Office
Brian Kahin, OECD Directorate for Science, Technology and Innovation
John King, Department of Agriculture
Gene Kuehneman, Retired
Christine Kymn, Small Business Administration
Bhavya Lal, Science and Technology Policy Institute
Nancy Lutz, National Science Foundation
Patricia Mabry, National Institutes of Health
Jeffrey Macher, Georgetown University
Guru Madhavan, National Academy of Sciences
Suzanne Majewski, Department of Justice
Alan Marco, Georgia Institute of Technology
Eliot Maxwell, Johns Hopkins University
Stephen Merrill, Duke University
Peter Meyer, Bureau of Labor Statistics
David Mitch, University of Maryland, Baltimore County
Megha Mukim, The World Bank
Suzanne Munck, Federal Trade Commission
James W. Nachbaur, Department of Energy
Juan Carlos Navarro, Inter-American Development Bank
Dimitar Naydenov, University of Maryland
Daniel Newlon, American Economic Association
Bonnie Nichols, National Endowment for the Arts
Jason O'Connor, Federal Trade Commission
Vishal Patel, Department of State
Vanessa Pena, Institute for Defense Analyses
Carlo Pietrobelli, University Roma Tre and UNU-MERIT
Carl Pray, Rutgers University
Ruth Raubitschek, Department of Justice
Juan Riveros, Quadrant Economics LLC
Mark Rohrbaugh, National Institute of Health
Seth Sacher, Federal Trade Commission
Akbar Sadeghi, Bureau of Labor Statistics
Joshua Sarnoff, DePaul University
Murat Seker, The World Bank
Stephanie S. Shipp, University of Virginia
Chad Shirley, Congressional Budget Office
Randolph Sim, Georgetown University
Donald Spicer, University System of Maryland
Erik Stam, Ulrecht University
Reid Stevens, Council of Economic Advisers
Claudia Stevenson, Inter-American Development Bank
Miron Straf, Virginia Tech
Robert Strom, Ewing Marion Kauffman Foundation
Joseph Teter, Naval Surface Warfare Center
Walter Valdivia, Mercatus Center
Richard Van Atta, Institute for Defense Analyses
Tandy Warnow, University of Illinois
Philip Webre, Congressional Budget Office
Brad Wible, Science Magazine
Nathan Wilson, Federal Trade Commission
Timothy Wojan, National Science Foundation
Patty Wu, C&M International
Rieko Yajima, Stanford University

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