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Entrepreneurs and New Ideas

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  • Biais, Bruno
  • Perotti, Enrico

Abstract

Innovative ideas are novel combinations of productive resources potentially addressing an economic need (Schumpeter, 1926). Even promising ideas can be unprofitable if the proposed combination fails on at least one dimension, e.g., it is technically unfeasible or does not respond to a genuine customer need. To screen good ideas the entrepreneur needs to hire experts who evaluate the idea along their dimensions of expertise. Yet sharing the idea creates the risk that an expert would steal it. In this case, the idea-thief cannot contact any other expert, lest he should in turn steal the idea. Thus idea stealing leads to incomplete screening and is unattractive if the information of the other expert is critical or highly complementary. In such cases the entrepreneur can form a partnership with the experts. Yet very valuable ideas cannot be shared because it is too tempting to steal them.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 347.

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Date of creation: Jun 2008
Date of revision: 0000
Publication status: Published in The RAND Journal of Economics, vol.�39, n°4, Winter 2008, p.�1105-1125.
Handle: RePEc:ide:wpaper:4373

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  1. Cestone, Giacinta & White, Lucy, 2002. "Anti-Competitive Financial Contracting: The Design of Financial Claims," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3182, C.E.P.R. Discussion Papers.
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  7. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, Econometric Society, vol. 60(1), pages 1-42, January.
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Cited by:
  1. Bayar, Onur & Chemmanur, Thomas J. & Liu, Mark H., 2011. "A theory of equity carve-outs and negative stub values under heterogeneous beliefs," Journal of Financial Economics, Elsevier, Elsevier, vol. 100(3), pages 616-638, June.
  2. Oliver Fabel & Dominique Demougin, 2004. "The Division of Ownership in New Ventures," Working Papers of the Research Group Heterogenous Labor, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim 04-03, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  3. Mathias Dewatripont & Jean Tirole, 2005. "Modes of Communication," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(6), pages 1217-1238, December.
  4. Walter Buhr, 2009. "Infrastructure of the Market Economy," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 132-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  5. Andres Almazan & Javier Suarez & Sheridan Titman, 2009. "Firms' Stakeholders and the Costs of Transparency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 871-900, 09.
  6. Herschel I. Grossman, 2000. "Inventors and Pirates: Creative Activity and Intellectual Property Rights," NBER Working Papers 7898, National Bureau of Economic Research, Inc.
  7. Tykvova, Tereza, 2007. "Who chooses whom? Syndication, skills and reputation," Review of Financial Economics, Elsevier, Elsevier, vol. 16(1), pages 5-28.
  8. Alexandre Gaudeul, 2004. "Open Source Software Development Patterns and License Terms," Industrial Organization, EconWPA 0409008, EconWPA.
  9. Bourjade, Sylvain & Jullien, Bruno, 2004. "Expertise and Bias in Decision Making," MPRA Paper 7251, University Library of Munich, Germany, revised Jan 2007.
  10. Marini, Marco A., 2005. "The value of a new idea: knowledge transmission, workers' mobility and market structure," MPRA Paper 1687, University Library of Munich, Germany, revised Jan 2006.
  11. Thomas Hellman & Enrico Perotti, 2010. "The Circulation of Ideas in Firms and Markets," Working Papers 2010.47, Fondazione Eni Enrico Mattei.
  12. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, Screening and Syndication in Venture Capital Investments," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 443, Institut d'Économie Industrielle (IDEI), Toulouse.
  13. Prüfer, J., 2008. "Semi-Public Contests," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2008-023, Tilburg University, Tilburg Law and Economic Center.
  14. Herbst, Patrick & Walz, Uwe, 2009. "The design of vertical R&D collaborations," CFS Working Paper Series 2009/06, Center for Financial Studies (CFS).

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