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Optimal Public Policy For Venture Capital Backed Innovation

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  • Christian Keuschnigg

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Abstract

This paper discusses the role of public policy towards the venture capital industry. The model emphasizes four margins: supply of entrepreneurs due to career choice, entry of venture capital funds and search for investment opportunities, simultaneous entrepre-neurial effort and managerial advice subject to double moral hazard, and mark-up pricing when the successful firm introduces a new good. The paper derives an optimal policy that succeeds to implement a first best allocation in decentralized equilibrium. It also considers short- and long-run comparative static and welfare effects of piecemeal reform with regard to the capital gains tax, innovation subsidy, public R\&D spending and other policy initiatives.

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Bibliographic Info

Paper 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 2003-09.

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Length: 62 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:usg:dp2003:2003-09

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Keywords: Innovation; venture capital; double moral hazard; public policy;

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References

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