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Public Policy and Venture Capital Backed Innovation

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  • Christian Keuschnigg

Abstract

This paper discusses the role of public policy towards the venture capital industry. The model emphasizes four margins: supply of entrepreneurs due to career choice, entry of venture capital funds and search for investment opportunities, entrepreneurial effort and venture capital advice during the start-up period, and introduction of new goods by successful start-ups. The paper considers short- and long-run comparative static and welfare effects of policy reform with regard to capital gains taxation, innovation subsidies, public R&D spending and other policy initiatives.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-10/cesifo1_wp1066.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1066.

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Date of creation: 2003
Date of revision:
Handle: RePEc:ces:ceswps:_1066

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Related research

Keywords: innovation; venture capital; double moral hazard; public policy;

This paper has been announced in the following NEP Reports:

References

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  1. Christian Keuschnigg & Soren Bo Nielsen, 2000. "Tax Policy, Venture Capital, and Entrepreneurship," NBER Working Papers 7976, National Bureau of Economic Research, Inc.
  2. Gromb, Denis & Scharfstein, David, 2002. "Entrepreneurship in Equilibrium," CEPR Discussion Papers 3652, C.E.P.R. Discussion Papers.
  3. Keuschnigg, Christian & Nielsen, Soren Bo, 2002. "Start-ups, Venture Capitalists and the Capital Gains Tax," CEPR Discussion Papers 3263, C.E.P.R. Discussion Papers.
  4. Michelacci, Claudio & Suarez, Javier, 2002. "Business Creation and the Stock Market," CEPR Discussion Papers 3513, C.E.P.R. Discussion Papers.
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  8. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages F73-F84, February.
  9. Paul A. Gompers & Josh Lerner, 1999. "What Drives Venture Capital Fundraising?," NBER Working Papers 6906, National Bureau of Economic Research, Inc.
  10. Thomas Hellmann, 1998. "The Allocation of Control Rights in Venture Capital Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 57-76, Spring.
  11. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December.
  12. Poterba, James M., 1989. "Capital Gains Tax Policy Toward Entrepreneurship," National Tax Journal, National Tax Association, vol. 42(3), pages 375-89, September.
  13. Klaus M. Schmidt, 2003. "Convertible Securities and Venture Capital Finance," Journal of Finance, American Finance Association, vol. 58(3), pages 1139-1166, 06.
  14. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
  15. Oliver Hart, 2001. "Financial Contracting," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1079-1100, December.
  16. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
  17. Christian Keuschnigg, 2003. "Taxation of a Venture Capitalist With a Portfolio of Firms," University of St. Gallen Department of Economics working paper series 2003 2003-04, Department of Economics, University of St. Gallen.
  18. Kaplan, Steven & Strömberg, Per Johan, 2000. "Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contracts," CEPR Discussion Papers 2421, C.E.P.R. Discussion Papers.
  19. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  20. Ralf Becker & Thomas Hellmann, 2003. "The Genesis of Venture Capital - Lessons from the German Experience," CESifo Working Paper Series 883, CESifo Group Munich.
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  23. Roger H. Gordon, 1998. "Can High Personal Tax Rates Encourage Entrepreneurial Activity?," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 49-80, March.
  24. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  25. Steven N. Kaplan & Per Str�mberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
  26. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  27. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  28. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2003. "A cross-country comparison of full and partial venture capital exits," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 511-548, March.
  29. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
  30. Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, vol. 88(1), pages 290-306, March.
  31. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
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  33. Schmidt, Klaus M., 2003. "Convertible Securities and Venture Capital Finance," Munich Reprints in Economics 19769, University of Munich, Department of Economics.
  34. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
  35. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
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Citations

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Cited by:
  1. Cumming, Douglas & Fleming, Grant & Schwienbacher, Armin, 2006. "Legality and venture capital exits," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 214-245, January.
  2. Cumming, D. & Johan, S.A., 2005. "Advice and monitoring in venture finance," Discussion Paper 2005-003, Tilburg University, Tilburg Law and Economic Center.
  3. Johan, Sofia & Najar, Dorra, 2011. "The Role of Law Corruption and Culture in Investment Fund Manager Fees," Economics Papers from University Paris Dauphine 123456789/5830, Paris Dauphine University.
  4. Andy Cosh & Douglas Cumming & Alan Hughes, 2005. "Outside Entrepreneurial Capital," ESRC Centre for Business Research - Working Papers wp301, ESRC Centre for Business Research.
  5. Cumming, Douglas & Johan, Sofia, 2007. "Regulatory harmonization and the development of private equity markets," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3218-3250, October.
  6. Cumming, D. & Johan, S.A., 2005. "Provincial preferences in private equity," Discussion Paper 2005-004, Tilburg University, Tilburg Law and Economic Center.
  7. Cumming, D. & Johan, S.A., 2005. "Is it the law or the lawyers? Investment fund covenants," Discussion Paper 2005-005, Tilburg University, Tilburg Law and Economic Center.
  8. Cumming, Douglas & Dai, Na, 2010. "Local bias in venture capital investments," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 362-380, June.

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