Agent-Based Simulation of New Venture Social and Institutional Embeddedness in Regional Sustainability of Entrepreneurship

New ventures build capabilities and gain competitive advantage by incorporating new knowledge into their young organizations. Regions depend on these ventures to introduce new value creation into their economies, creating stability and growth. For this reason, policymakers and economic development agencies view increased entrepreneurial activity as a crucial formula for economic prosperity. This research examines the impact of new venture formation on regional vitality by modeling it within the social and institutional systems that comprise economic innovation. The process of new venture formation is a complex system of activities through which entrepreneurs accumulate resources, develop legitimacy, and improve their competitive positions. Using agent-based simulation, this study presents a model of new venture formation as interacting systems of knowledge appropriation and innovation production. In this simulation, entrepreneurs and incumbent firms pursue innovations that the market may buy, while institutions mediate the flows of knowledge used to construct these innovations. The results demonstrate how localized knowledge spillover and boundary-spanning knowledge acquisition coexist as mechanisms of entrepreneurial growth of regions rather than as competing explanations. Simulation outcomes also demonstrate that larger networks are not necessarily better for the survival of new ventures. Finally, the results show that institutional knowledge mediation is a significant externality in the emergence of entrepreneurial activity in a region. The implications of this simulation impact regional economic development and the direction of future research by shedding light on the complex interaction between new ventures early in their formation and regional institutions’ efforts to shape entrepreneurial activity