Spin-offs and the market for ideas
AbstractThe authors propose a theory of firm dynamics in which workers have ideas for new projects that can be sold in a market to existing firms or implemented in new firms: spin-offs. Workers have private information about the quality of their ideas. Because of an adverse selection problem, workers can sell their ideas to existing firms only at a price that is not contingent on their information. The authors show that the option to spin off in the future is valuable so only workers with very good ideas decide to spin off and set up a new firm. Since entrepreneurs of existing firms pay a price for the ideas sold in the market that implies zero expected profits for them, firms’ project selection is independent of their size, which, under some assumptions, leads to scale-independent growth. The entry and growth process of firms in this economy leads to an invariant distribution that resembles the one in the U.S. economy.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-15.
Date of creation: 2007
Date of revision:
Other versions of this item:
- Satyajit Chatterjee & Esteban Rossi-Hansberg, 2007. "Spin-offs and the Market for Ideas," NBER Working Papers 13198, National Bureau of Economic Research, Inc.
- Esteban Rossi-Hansberg & Satyajit Chatterjee, 2007. "Spin-offs and the Market for Ideas," 2007 Meeting Papers 86, Society for Economic Dynamics.
- Satyajit Chatterjee & Esteban Rossi-Hansberg, 2008. "Spinoffs and the market for ideas," Working Papers 08-26, Federal Reserve Bank of Philadelphia.
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-23 (All new papers)
- NEP-BEC-2007-06-23 (Business Economics)
- NEP-ENT-2007-06-23 (Entrepreneurship)
- NEP-INO-2007-06-23 (Innovation)
- NEP-PPM-2007-06-23 (Project, Program & Portfolio Management)
- NEP-TID-2007-06-23 (Technology & Industrial Dynamics)
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