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Animal Spirits in Entrepreneurial Innovation: Theory and Evidence

Author

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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.

Suggested Citation

  • Angela Cipollone & Paolo E. Giordani, 2012. "Animal Spirits in Entrepreneurial Innovation: Theory and Evidence," Working Papers CELEG 1201, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:celegw:1201
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    References listed on IDEAS

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    Cited by:

    1. Paolo Giordani, 2015. "Entrepreneurial finance and economic growth," Journal of Economics, Springer, vol. 115(2), pages 153-174, June.

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    More about this item

    Keywords

    Entrepreneurship; financing of innovation; search and matching; strategic complementarities; venture capital; business angels.;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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