A Price Theory of Silicon Valley

I develop a model of the Silicon Valley engineer labor and venture capital (VC) markets. Software engineers choose between joining an established software company or founding a venture-backed startup. In equilibrium, they are indifferent between entrepreneurship and employment. The model predicts equilibrium market wages, the terms of VC investments (i.e., the fraction of equity retained by the entrepreneur) and the minimum ``quality\u27\u27 of the ideas pursued by startups, as represented by the VC funding ``standard.\u27\u27 This funding standard is inversely related to the number of new startups per period. Predictions about how the equilibrium is affected by the costs of startups, the cost of capital, the supply of ideas and the supply of engineers are presented

FASB: Making Financial Statements Mysterious

Since the passage of the Sarbanes-Oxley Act in 2002, the Financial Accounting Standards Board has passed rules that it promises will make corporate accounting more transparent. In fact, its revised Generally Accepted Accounting Principles have made it difficult for investors -- or even CEOs -- to understand a company's financial report. The first step in the wrong direction came when FASB mandated that companies list "intangibles" such as "goodwill" as corporate assets, artificially inflating balance sheets. After that, FASB meddled with the revenue recognition rules, in some cases not allowing companies to report revenue from cash payments received from a customer for a delivered product. Finally, and worst by far, FASB mandated punitive and nonsensical rules for so-called expensing of stock options. These accounting burdens, combined with the onerous yet ineffective mandates of the Sarbanes-Oxley Act, are starting to take a real toll on American businesses and markets. In 2007, only $8.5 billion or 7.7 percent of the total$109 billion in issuances of Initial Public Offerings were launched on U.S. stock exchanges, down from 60.8 percent a decade ago

Coming From Good Stock: Career Histories and New Venture Formation

We examine how the social structure of existing organizations influences entrepreneurship and suggest that resources accrue to entrepreneurs based on the structural position of their prior employers. We argue that information advantages allow individuals from entrepreneurially prominent prior firms to identify new opportunities. Entrepreneurial prominence also reduces the perceived uncertainty of a new venture. Using a sample of Silicon Valley start-ups, we demonstrate that entrepreneurial prominence is associated with initial strategy and the probability of attracting external financing. New ventures with high prominence are more likely to be innovators; furthermore, innovators with high prominence are more likely to obtain financing

Quantifying the impacts of regulatory delay on housing affordability and quality in Austin, Texas

textRegulatory delay during site plan review of multifamily projects in Austin has three primary impacts: 1) it generates unexpected development costs which increases housing prices over-time; 2) it stifles innovation and decreases quality of development; and 3) it promotes exurban growth. These impacts reduce affordability and quality of life for all Austinites and thwart the goals of the Imagine Austin comprehensive plan. As regulatory delays have increased remarkably since 2009, strong rent growth has compensated for this growing uncertainty throughout the Austin market. If regulatory delays are eliminated and developers receive approvals for multifamily projects within the 120 day mandate instead of the 223 day average, renters could see relief of 4-5% on their rent, or an average of $60 per month or$720 annually in Central Austin. Interviews with 14 Austin-area residential developers confirm these delays, costs, and impacts on their projects. On average it takes 3.5 additional months to receive site plan approvals in Austin in addition to the code mandated four month cycle. Austin's peer cities fare differently. The average delay in Denver, Colorado is three weeks, and is just several days in Raleigh, North Carolina. Whereas land use regulations theoretically generate positive externalities, delays in administering those regulations generate no benefits to the community. During this unforeseen 3.5 months, developers accrue unexpected costs such as legal fees, and developer overhead which includes the opportunity costs of not pursuing other deals. Construction costs increase during delays, and developers must continue to pay for land options and carry costs. In the short-term, developers pay for these unexpected costs out-of-pocket, and by reducing construction costs, which can result in lower quality materials or amenities. Unexpected costs roll into the project's overall budget, resulting in more expensive development projects. More expensive projects require higher rents in order to maintain the development team's expected yield on cost. Further, interviews with urban designers and civil engineers reveal that regulatory delay stifles private sector innovation in the built environment. Developer interviews and case studies suggest that regulatory delay promotes exurban growth instead of urban infill in the Austin metropolitan area.Community and Regional Plannin

Silicon Valley versus Corporate Welfare

The estimated $65 billion a year that the federal government now spends on corporate welfare programs harms U.S. industry in general and Silicon Valley companies in particular. The competitiveness of America's semiconductor firms and other high-technology industries would benefit if corporate subsidies were eliminated altogether and the savings were devoted to reducing corporate income taxes, the capital gains tax, or the personal income tax. Given Congress's reluctance to vote down corporate pork, one strategy for eliminating corporate welfare would be to form an independent commission to identify unnecessary subsidies. That would force Congress to vote yes or no on a package of corporate spending subsidies. More than 50 Silicon Valley CEOs agree with this critical assessment of federal subsidies to industry and have signed a "Declaration of Independence" from corporate welfare. In the statement, which appears in the Appendix of this study, the CEOs urge Congress to end corporate welfare "even if it means funding cuts to my own company.

Dynamics of High-Technology Firms in the Silicon Valley

The pace of technological innovation since World War II is dramatically accelerating following the commercial exploitation of the Internet. Since the mid 90’s fiber optics capacity (infrastructure for transmission of information including voice and data) has incremented over one hundred times thanks to a new technology, dense wave division multiplexing, and Internet traffic has increased over 1.000 times. The dramatic advances in information technology provide excellent examples of the critical relevance of the knowledge in the development of competitive advantages. The Silicon Valley (SV) that about fifty years ago was an agricultural region became the center of dramatic technological and organizational transformations. In fact, most of the present high-tech companies did not exist twenty years ago. Venture capital contribution to the local economy is quite important not only due to the magnitude of the financial investment (venture investment in SV during 2000 surpassed 25.000 millions of dollars) but also because the extent and quality of networks (management teams, senior employees, customers, providers, etc.) that bring to emerging companies. How do new technologies develop? What is the role of private and public investment in the financing of R&D? Which are the most dynamical agents and how do they interact? How are new companies created and how do they evolve? The discussion of these questions is the focus of the current work.Technological development, R&D, networks

Housing the knowledge economy in China: An examination of housing provision in support of science parks

Little attention is paid in the extant academic literature to the question of housing knowledge workers despite the potential mismatches between housing supply and demand. This paper provides an initial examination of housing the knowledge economy in China, focusing on three science parks (SPs): Zhongguancun (Z-Park, Beijing), Zhangjiang (Z-SHIP, Shanghai) and Optics Valley of China (OVC, Wuhan). It discusses to what extent, and how these three SPs have factored in the housing dimension in connection with the knowledge economy, paying particular attention to housing affordability, location (inside the SPs or outside in the wider city-region) and the mode of provision (market or state). Insights were drawn from documentary analysis and in-depth interviews in the three chosen case studies. Initial evaluation of policies geared towards housing supply in China suggests that the housing question needs to come to the fore in discussions of structural transformation towards the knowledge economy

A comparative analysis of the location behaviour of Japanese and European semiconductor manufacturers

Our paper analyses micro-level data from Japnese and European semiconductor manufacturers. We integrate a range of production technological indices with spatial data and regional economic variables in order to understand the principalissues determining the location behaviour of this sector. Our resuklts show that there are marked differences between the Japanese and European sectors of the industry, with many parts of this sector not corresponding either to an orthodox product life-cycle model or a simple Marshallian model of agglomeration beased on information-spillovers.

Entrepreneurial Ventures and the Developmental State: Lessons from the Advanced Economies

A basic intellectual challenge for those concerned with the poverty of nations is to come to grips with the nature and causes of the wealth of the world?s wealthier nations. One might then be in a position to inform the poorer nations how they might achieve similar outcomes. This paper is organized around what I call ?the theory of innovative enterprise?, a perspective derived from the historical and comparative study of the development of the advanced economies. The theory of innovative enterprise provides the essential analytical link between entrepreneurship and development. Section 2 offers, as a point of departure, a contrast between entrepreneurship in rich and poor nations. Section 3 outlines the theory of the innovating firm in which entrepreneurship has a role to play. Section 4 identifies the roles of entrepreneurship in new firm formation in terms of the types of strategy, organization, and finance that innovation requires, and emphasizes the ?disappearance? of entrepreneurship with the growth of the firm. In Section 5 I argue that, in the advanced economies, successful entrepreneurship in knowledge intensive industries has depended heavily upon a combination of business allocation of resources to innovative investment strategies, and government investment in the knowledge base, state sponsored protection of markets and intellectual property rights, and state subsidies to support these business strategies. One cannot understand national economic development without understanding the role of the developmental state. At the same time, the specific agenda and ultimate success of the developmental state cannot be understood in abstraction from the dynamics of innovative enterprise. It is through the interaction of the innovative enterprise and the developmental state that entrepreneurial activity inserts itself into the economic system to contribute to the process of economic development.entrepreneurship, innovative enterprise, developmental state

ENDOGENOUS GROWTH AND GAINS FROM SKILLED IMMIGRATION

A previous result by Kemnitz (2001) based on AK type endogenous growth model implied that the gains from immigration depends up on the percapita possession of capital stock by immigrant relative to that of the natives’. However, such a framework ignores the incentive labor creates for innovation and productivity. By using framework of horizontal innovation of Romer (1991), it is shown that immigration entails Pareto improvement even when immigrants posses no physical capital in contrast to the result in the literature.Immigration Policy; Endogenous growth; Technical change