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Optimal Public Policy for Venture Capital Backed Innovation

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Keuschnigg, Christian

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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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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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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  6. Laura Bottazzi & Marco Da Rin, 2002. "Venture capital in Europe and the financing of innovative companies," Economic Policy, CEPR, CES, MSH, vol. 17(34), pages 229-270, 04. [Downloadable!] (restricted)
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  11. 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. [Downloadable!] (restricted)
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  17. Christian Keuschnigg & Soren Bo Nielsen, 2003. "Public Policy For Start-up Entrepreneurship With Venture Capital and Bank Finance," University of St. Gallen Department of Economics working paper series 2003 2003-02, Department of Economics, University of St. Gallen. [Downloadable!]
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  24. Christian Keuschnigg, 2002. "Taxation of a Venture Capitalist with a Portfolio of Firms," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  25. 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.
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  31. Berglof, Erik, 1994. "A Control Theory of Venture Capital Finance," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 247-67, October.
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  33. 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. [Downloadable!] (restricted)
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  35. James M. Poterba, 1989. "Venture Capital and Capital Gains Taxation," NBER Working Papers 2832, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  36. 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. [Downloadable!] (restricted)
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  38. AGHION, Philippe & TIROLE, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Keuschnigg, Christian & Nielsen, Soren Bo, 2003. "Taxation and Venture Capital-Backed Entrepreneurship," CEPR Discussion Papers 4097, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Heinz Handler & Andreas Knabe & Bertrand Koebel & Margit Schratzenstaller & Sven Wehke, 2005. "The Impact of Public Budgets on Overall Productivity Growth," WIFO Working Papers 255, WIFO. [Downloadable!]
  3. Julia Hirsch, 2006. "Public Policy and Venture Capital Financed Innovation: A Contract Design Approach," CFS Working Paper Series 2006/29, Center for Financial Studies. [Downloadable!]
  4. Cumming, Douglas & Johan, Sofia, 2006. "Regulatory harmonization and the development of private equity markets," Discussion Paper 1, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  5. Christian Keuschnigg & Soren Bo Nielsen, 2003. "Public Taxation and Venture Capital Backed Entrepreneurship," University of St. Gallen Department of Economics working paper series 2003 2003-17, Department of Economics, University of St. Gallen. [Downloadable!]
  6. Robin Boadway & Oana Secrieru & Marianne Vigneault, 2005. "A Search Model of Venture Capital, Entrepreneurship, and Unemployment," Working Papers 05-24, Bank of Canada. [Downloadable!]
  7. John Armour & Douglas Cumming, 2004. "The Legal Road To Replicating Silicon Valley," ESRC Centre for Business Research - Working Papers wp281, ESRC Centre for Business Research. [Downloadable!]
  8. Oana Secrieru & Marianne Vigneault, 2004. "Public Venture Capital, Occupational Choice, and Entrepreneurship," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 4(1), pages 1346-1346. [Downloadable!] (restricted)
  9. Cumming, Douglas & Johan, Sofia, 2006. "Corporate social responsibility: domestic and international private equity institutional investment," Discussion Paper 2, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  10. Christian Keuschnigg & Soren Bo Nielsen, 2003. "Taxes and Venture Capital Support," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
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