Innovation, incubation and place: An evolutionary theory of the performance of technology business incubators

Innovation and growth are political and economic processes, shaped by institutional factors contingent on the socioeconomic history of a place. The success of innovation-based development has inspired state and local governments to adopt innovation-based economic development polices. One of the favored policy options of state and local government is public investment in technology business incubators.; Since 1997, the number of technology incubators has doubled to nearly 300. The growth in the population masks the uneven performance across regions. There has been little work specifying what the regional characteristics that enhance incubator success might be or the degree to which technology incubator program design can compensate for the lack of regional capacity.; I advance an evolutionary theory asserting that the performance of technology incubators and their client firms is a function of both incubator quality and regional capacity that changes with the maturation of incubated firms. I hypothesize that while clients are tenants, quality incubators can compensate for the lack of regional capacity. However, regional capacity becomes the dominant factor shaping the growth trajectory of graduate firms. My final hypotheses are that the graduation rates of the incubator program and the survival rates of graduate firms are primarily a function of incubator quality.; Utilizing discriminant analysis, I analyze data from a survey of the population of technology incubators in the United States to distinguish between the effects of incubator quality and regional capacity on the performance of technology incubators. The 86 survey respondents (58.7%) were located in 59 different regions.; The results are striking. Incubator quality can compensate for the lack of regional capacity, enhancing the growth of tenant firms. However, post-graduation, the trajectory of graduate firms is rather closely tied to regional attributes. In addition, I find that the graduation rates and the survival rates of graduate firms are a function of both regional capacity and incubator quality, though the latter is indeed more important.; Given the high survival rates of graduate firms and their propensity to locate in the host region, I conclude that technology incubators can catalyze the formation of technology clusters in less dynamic regions and stimulate job creation. These outcomes are accelerated in more dynamic regions, increasing the competitive advantages that already exist.; The findings suggest that policy should be crafted along two tracks to improve the performance of technology incubators. At the incubator scale, public funding should be contingent on the implementation of best practices. At the regional scale, policy can address deficiencies in regional capacity by prioritizing investment in education and environmental quality.