This paper incorporates the variable elasticity of substitution preferences in the variety expansion model developed by Grossman and Helpman [(1991) Innovation and Growth in the Global Economy, MIT Press]. There exists a balanced growth path when the elasticity of substitution is constant with knowledge spillover. When the elasticity of substitution is variable and the knowledge spillover is sufficiently small, a unique and stable steady state exists. When the knowledge spillover is sufficiently large, the steady state is unique and unstable. When the size of the knowledge externality is moderate, multiple equilibria exist.

In 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.

Agricultural activities have imposed significant impacts on water resources, leading to hypoxic zones and harmful algal blooms all over the world. Government agencies, nongovernmental organizations, and individuals have been making various efforts to reduce this non-point source pollution. Among those efforts, even the more cost-effective examples of performance-based environmental payment programs generally have low participation rates. We investigate the effects of externalities in farmers’ decisions on neighboring farms, incorporating both a knowledge spillover effect and a positive environmental outcome externality of farmers’ best-management practice (BMP) adoption decisions. Our focus is on how these effects may influence the outcome of performance-based payment programs and how policy makers might recognize these effects in the design of cost-effective policies to promote program participation and BMP adoption. Rather than imposing an assumption of profit-maximization or forward-looking behavior, we allow outcomes to emerge from interactions among neighboring farmers. We recommend cost-effective policies across communities depending on their composition. It is more cost-effective to target communities with fewer innovators and/or target the programs towards the least-innovative individuals.