Abstract
AbstractIn his seminal 1921 book,Risk, Uncertainty, and Profit, Frank Knight distinguished uncertainty and risk. This paper applies Knight's concept of uncertainty to knowledge generated in incumbent organizations to explain the inherent difficulty in assessing potential innovations along with the key role played by knowledge spillover entrepreneurship as a conduit for transforming new knowledge created by an incumbent organization but ultimately commercialized through the creation of a new firm and innovation. Knowledge is inherently uncertain and constitutes what is characterized as the knowledge filter impeding innovative activity in the context of incumbent firms and organizations. The organizational and institutional context and market uncertainty can either facilitate or impede the spillover of knowledge from the firm where it was created to the entrepreneurial startup where it is transformed into innovation. The empirical evidence based on a large, unbalanced panel of 9,126 UK firms constructed from six consecutive waves of a community innovation survey and annual business registry survey during 2002–2014. Implications for managers, scholars, and policymakers are provided.
Highlights
At the time of the publication of Risk, Uncertainty, and Profit (Knight, 1921), Wesley Mitchell wrote in the American Economic Review that the theory ‘ is not less valid to the realistic economist than to the pure theorist’ (Mitchell, 1922: 275)
Our finding suggests that entrepreneurs embrace uncertainty to innovate and that knowledge spillovers are greater for startups than through intrapreneurship within incumbent firms
Focusing on the emerging judgment-based approach (JBA) to entrepreneurship, we argue that economics can say much about how the organizational, market, and institutional context shapes entrepreneurial judgment
Summary
At the time of the publication of Risk, Uncertainty, and Profit (Knight, 1921), Wesley Mitchell wrote in the American Economic Review that the theory ‘ is not less valid to the realistic economist than to the pure theorist’ (Mitchell, 1922: 275). Watkins reflected on Knight’s seminal book by emphasizing several key aspects of Knight’s distinction between risk and uncertainty, especially in terms of its explanation of business profit. Knight further extended the core ideas in the book revolving around uncertainty and risk in his two Harvard lectures on ethics and economics (Knight, 1922, 1923) and the economics textbook, The Economic Organization (Knight, 1933).
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