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Animal Spirits in Entrepreneurial Innovation: Theory and Evidence

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  • Angela Cipollone

    ()
    (Department of Economics and Finance, LUISS Guido Carli University)

  • Paolo E. Giordani

    ()
    (Department of Economics and Finance, LUISS Guido Carli University)

Abstract

This paper proposes and empirically tests a theory of entrepreneurial innovation in order to explain its high degree of concentration in space and time. In the model, a successful entrepreneurial project is the result of a search and matching process between entrepreneurs looking for funds and capitalists looking for new ideas to finance. The resulting strategic complementarity between them gives rise to a multiplier effect, whereby any exogenous shock has a magnified effect on the process of innovation. Moreover, if complementarity is sufficiently strong, multiple equilibria arise, which are characterized by different levels of entrepreneurial activity. Using data from the European and the US business angels markets for the period 1996-2010, we show that (i) a complementarity exists between business angels and the entrepreneurial projects submitted to them, and that (ii) the result of multiple equilibria is empirically plausible.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CELEG with number 1201.

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Date of creation: 2012
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Handle: RePEc:lui:celegw:1201

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Keywords: Entrepreneurship; financing of innovation; search and matching; strategic complementarities; venture capital; business angels.;

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  2. Henry Chen & Paul Gompers & Anna Kovner & Josh Lerner, 2009. "Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion," NBER Working Papers 15102, National Bureau of Economic Research, Inc.
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  8. P. A. Diamond, 1982. "Money in Search Equilibrium," Working papers 297, Massachusetts Institute of Technology (MIT), Department of Economics.
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  11. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  12. Vincenzo Verardi & Christophe Croux, 2009. "Robust regression in Stata," Stata Journal, StataCorp LP, vol. 9(3), pages 439-453, September.
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  14. Christian Keuschnigg, 2003. "Optimal Public Policy For Venture Capital Backed Innovation," University of St. Gallen Department of Economics working paper series 2003 2003-09, Department of Economics, University of St. Gallen.
  15. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
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