Slack Time and Innovation

The question of how crowdfunding changes the types of entrepreneurs and ideas that are funded is also the focus of “Slack Time and Innovation”. Using large-scale data on Kickstarter projects, their founding teams and skills, we investigate how this new source of capital allows individuals who are not full-time innovators to de-risk entrepreneurial ideas. We focus on a demographic - college students - that often has the right human capital but not the access to capital necessary to commercialize ideas. This gives us regional variation in terms of when students are more versus less likely to have time for experimentation (college breaks). The paper starts from a key insight from the literature - the fact that slack can be both a source of breakthroughs, but also of resource misallocation - to develop and test a simple theoretical model for the role low-opportunity cost time plays in innovation. Using a difference-in-differences approach, we confirm the main predictions of the model: Slack time induces more projects on both tails of the outcome distribution, with the right tail being driven by complex projects developed by teams with diverse skills. Our results highlight that a sufficient amount of contiguous time and “overlapping slack” are critical for facilitating team coordination and implementing high-potential projects. Stricter screening mechanisms are also effective in conjunction with slack to reduce the number of marginal projects being developed.

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