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Optimal Public Policy for Venture Capital Backed Innovation

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  • Keuschnigg, Christian

Abstract

This Paper discusses the role of public policy towards the venture capital industry. The model emphasises four margins: supply of entrepreneurs due to career choice, entry of venture capital funds and search for investment opportunities, simultaneous entrepreneurial effort and managerial advice subject to double moral hazard, and mark-up pricing when the successful firm introduces a new good. The Paper derives an optimal policy that succeeds to implement a first best allocation in decentralized equilibrium. It also considers short- and long-run comparative static and welfare effects of piecemeal reform with regard to the capital gains tax, innovation subsidy, public R&D spending and other policy initiatives.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3850.

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Date of creation: Mar 2003
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Handle: RePEc:cpr:ceprdp:3850

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

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References

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