Public Policy for Venture Capital
AbstractThis paper proposes a simple partial equilibrium model to investigate the effects of government policy on venture capital backed investments. Giving up an alternative career, entrepreneurs focus their effort on a single, high risk venture each. Venture capitalists acquire an equity stake and offer a base salary as well. In addition to providing incentive compatible equity finance, they support the venture with managerial advice to raise survival chances. We analyze several policy measures addressed at venture capital activity: government spending on entrepreneurial training, subsidies to equipment investment, and output subsidies at the production stage. While these measures stimulate entrepreneurship, only cost-effective government services can improve welfare.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 486.
Date of creation: 2001
Date of revision:
Venture capital; moral hazard; managerial advice; public policy;
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