Do Thick Venture Capital Markets Foster Innovation$\_?$ A Strategic Analysis
AbstractIn this paper we examine how far the availability of venture capital influences the speed of technological progress in an industrial agglomeration. We consider a model where R\&D efforts of an incumbent firm generates technological know-how embodied in key R\&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R\&D might be reduced and, second, the generation of spinoff firms, which leads to the diffusion and duplication of know-how, might be fostered. The trade-off between these two effects is first studied in the framework of a static game-theoretic analysis and then in a dynamic agent-based simulation model.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 216.
Date of creation: 04 Jul 2006
Date of revision:
Venture Capital; Technological Progress; R&D efforts; Spinoffs;
Find related papers by JEL classification:
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- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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- Luca Colombo & Herbert Dawid & Kordian Kabus, 2007.
"When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis,"
DISCE - Quaderni dell'Istituto di Economia e Finanza
ief0074, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
- Luca Colombo & Herbert Dawid & Kordian Kabus, 2012. "When do thick venture capital markets foster innovation? An evolutionary analysis," Journal of Evolutionary Economics, Springer, vol. 22(1), pages 79-108, January.
- Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2008. "Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
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