Entrepreneurship at Innopolis

Last week, I served as visiting prof at Innopolis University close to the city of Kazan, Russia. Innopolis is a very ambitious project to create a new Silicon Valley look alike IT hub, clustering the best of IT Russia has to offer – some people start thinking some things now….The city will be up to 200k people with IQ above 140, I guess, and has the features of the ultimate smart city. Clearly a top university is there to support this. My subject zoomed in on revenue models and the pricing dynamics of startups and scale ups, with classic Harvard Business School cases like the Dropbox freemium model and the near failure of Zipcar in classical adverse selection effects of getting price discrimination wrong – see below.

Probably the most interesting case is the pricing policy of Innopolis itself and what we can learn from it for stimulating entrepreneurship through university education. Students at Innopolis do not pay tuition fee, but do sign a contract that after graduation they will work for three years at a company (most large multinationals) located at Innopolis Science Park next door. These multinationals pay Innopolis 100k per student. As a recent university, there clearly is some dangerous hockey stick effect in this business model, but the Tatarstan regional government plays a ‘positive role’ in financing the startup dip. Now, people may think: Are these students temporary slaves; who earns the revenues of building Innopolis; and the revenues from the rent of the science park? Well, the park’s angel is Medvedev, maybe that provides some doors to the Innopolis’ financial back office.

The interesting thing – and explanation for the popularity of the entrepreneurship course, maybe – is that there is an interesting clause in the student contract: starting your own company at the science park frees you from working for the science park companies! This the mechanism design economist really likes. So, on the one hand you introduce a hold-up problem that is at the border of the participation constraint of a talented student (modern-education-no-tuition-fee versus three years of relative slavery and low pay) but than you ad the extra incentive through the entrepreneurship opt-out. That is what I call nudging! Wonder whether it is lucky ignorance or clever policy. What I do know is that a successful entrepreneurship course will cost Innopolis much more than my fee.

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