Diffusion of Complex Innovations through Networks

Complex innovations – ideas, practices, and technologies that hold uncertain benefits for potential adopters — often vary in their ability to diffuse in different communities over time. To explain why, I develop a model of innovation adoption in which agents engage in naïve (DeGroot) learning about the value of an innovation within their social networks. Using simulations on Bernoulli random graphs, I examine how adoption varies with network properties and with the distribution of initial opinions and adoption thresholds. The results show that: (i) low-density and high-asymmetry networks produce polarization in influence to adopt an innovation over time, (ii) increasing network density and asymmetry promote adoption under a variety of opinion and threshold distributions, and (iii) the optimal levels of density and asymmetry in networks depend on the distribution of thresholds: networks with high density (>0.25) and high asymmetry (>0.50) are optimal for maximizing diffusion when adoption thresholds are right-skewed (i.e., barriers to adoption are low), but networks with low density (<0.01) and low asymmetry (<0.25) are optimal when thresholds are left-skewed. I draw on data from a diffusion field experiment to predict adoption over time and compare the results to observed outcomes. Link to article.

Crowdfunding and Access to Entrepreneurial Finance

Crowdfunding (CF) platforms, such as Kickstarter (KS), offer a means of funding innovation, connecting inventors and entrepreneurs with a multitude of supporters, who each provide a small fraction of the amount required to fund the project. Although considerable funding for innovation has historically come from venture capitalists (VCs), the entrepreneurs funded by VCs often mirror the investors in terms of their educational, social, and professional characteristics and end up concentrated in a small number of regions (14). Policy-makers have thus hailed CF platforms, hoping that they will expand access to entrepreneurial finance, including among women and minority innovators, and that the innovations funded will create jobs and spur economic growth (5). But if particular regions, or certain sorts of individuals, routinely produce better ideas (6), and VC concentrates on them, then CF might simply compete with professional investors to fund the same ideas. We find, however, that CF has been funding innovators in a large number of places that have typically been excluded from VC, and has also been expanding the geographic reach of VC itself. Link to article.

Entrepreneurship in Emerging Economies

Entrepreneurs in many emerging economies start their firms informally, without registering with the state. We examine how informality at the time of founding affected the performance of 12,146 firms in 18 countries across sub-Saharan Africa. Our findings indicate that entrepreneurs who registered their firms at founding enjoyed greater success in terms of sales and employment. But these benefits varied widely across countries. Consistent with the idea that legitimation processes account for these benefits, countries in which people trust their government more had larger advantages associated with being formal. Link to article.