Knowledge Arbitrage, Serendipity, and Acquisition Formality: Their Effects on Sustainable Entrepreneurial Activity in Regions

We explore heterogeneity in the formation of new ventures within regions using agent-based simulation methodology. The study draws on entrepreneurial knowledge and action literature to examine the roles of knowledge acquisition and transformation in regional sustainability of new venture formation. A model of new venture growth pitted against incumbent firm innovation is tested on configurations of regional knowledge landscapes. Results of this analysis suggest that competing entrepreneurship perspectives of knowledge spillover and network-based new venture formation coexist and even interact. Formal knowledge acquisition and knowledge arbitrage are more effective formation mechanisms in knowledge-scarce regions, while informal knowledge acquisition and serendipity produce the highest levels of new venture formation in knowledge-rich regions. New ventures with smaller networks tend to exhibit higher likelihood of formation than those with larger networks. Formal knowledge acquisition and arbitrage not only improve survival early in the evolution of regions, but also create the basis for informal, serendipitous knowledge appropriation's superior influence on sustainable entrepreneurship. These results provide a platform for future research regarding theoretical perspectives on new venture formation, suggest growth strategies to entrepreneurs, and offer guidance to policymakers and economic development professionals who strive to increase the entrepreneurial activity of their regions or countries.