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Entrepreneurship and the Process of Obtaining Resource Commitments

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  • Thomas Hellmann

    (Stanford University)

Abstract

Most theories of the firm ignore the entrepreneurial process of how the various resources of the firm are combined in the first place. This paper examines the process of how an entrepreneur obtains commitments from multiple resource providers to create a new venture. Resource providers may be reluctant to commit to an unproven concept, and the commitment of one gives external validation for the others. The entrepreneur has to decide in what order to approach potential providers, and what to bargain for. The optimal sequence of commitments depends on the entrepreneur's own credibility. Additional problems arise when no resource provider wants to be the first to commit. In this case the entrepreneur may shuttle between resource providers for a long time and the venture may never get started. The paper also shows how, as a result of the entrepreneurial process, the resources in a firm may differ from their first-best combination.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0399.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0399

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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 97-109, January.
  2. Benjamin E. Hermalin, 1997. "Toward an Economic Theory of Leadership: Leading by Example," Microeconomics, EconWPA 9612002, EconWPA.
  3. Binmore, K. & Osborne, M.J. & Rubinstein, A., 1989. "Noncooperative Models Of Bargaining," Papers, Michigan - Center for Research on Economic & Social Theory 89-26, Michigan - Center for Research on Economic & Social Theory.
  4. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  5. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(4), pages 73-94, Fall.
  6. Hart, Sergiu & Mas-Colell, Andreu, 1996. "Bargaining and Value," Econometrica, Econometric Society, Econometric Society, vol. 64(2), pages 357-80, March.
  7. Raghuram G. Rajan & Luigi Zingales, 2000. "The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms," NBER Working Papers 7546, National Bureau of Economic Research, Inc.
  8. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  9. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(2), pages 337-388, May.
  10. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 195-222, March.
  11. Anton, James J & Yao, Dennis A, 1995. "Start-ups, Spin-offs, and Internal Projects," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 11(2), pages 362-78, October.
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Cited by:
  1. Hellmann, Thomas F. & Puri, Manju, 2000. "Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence," Research Papers, Stanford University, Graduate School of Business 1661, Stanford University, Graduate School of Business.
  2. Nicholas Dew & Saras Sarasvathy, 2007. "Innovations, Stakeholders & Entrepreneurship," Journal of Business Ethics, Springer, Springer, vol. 74(3), pages 267-283, September.
  3. Biais, Bruno & Perotti, Enrico, 2008. "Entrepreneurs and New Ideas," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 347, Institut d'Économie Industrielle (IDEI), Toulouse, revised 0000.
  4. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, Elsevier, vol. 64(2), pages 285-314, May.

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