Taxation of a Venture Capitalist With a Portfolio of Firms
AbstractVenture capitalists not only finance but also advise and thereby add value to young innovative firms. The prospects of venture capital backed firms thus depend on joint efforts of entrepreneurs and informed venture capitalists, and are subject to double moral hazard. In financing a portfolio of firms, venture capitalists additionally face a trade-off between the number of companies and the amount of managerial advice allocated to each individual venture. The paper argues that managerial support and the number of portfolio firms are inefficiently low in private equilibrium. An optimal tax policy is derived that succeeds to move the private equilibrium towards a first best allocation.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2003 with number 2003-04.
Length: 28 pages
Date of creation: Nov 2003
Date of revision:
Venture capital; double moral hazard; optimal taxation.;
Other versions of this item:
- Christian Keuschnigg, 2004. "Taxation of a venture capitalist with a portfolio of firms," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 285-306, April.
- Christian Keuschnigg, 2002. "Taxation of a Venture Capitalist with a Portfolio of Firms," CESifo Working Paper Series 813, CESifo Group Munich.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-02-24 (All new papers)
- NEP-CFN-2003-02-24 (Corporate Finance)
- NEP-PUB-2003-02-24 (Public Finance)
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