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Success breeds success locally: a tale of incubator firms

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  • Inci, Eren

Abstract

This paper focuses on the pre-establishment period of start-ups in industrial districts. The industrial architecture is what I call a "rationed agglomeration" in which some entrepreneurs gather around an established firm while other entrepreneurs in the same business stand alone. In a rationed agglomeration, I analyze the e¤ects of relations between established firms, network entrepreneurs, and local financiers on the market prices of loans. I show that such relations improve the match of capital to ideas in the network even though the overall distribution of capital to ideas remains unchanged. This suggests that success breeds success in the networks of established firms. The existence of networks overturns the claim that there are no motives to engage in information gathering in a simple market regime with information asymmetries. In particular, I show that there are market incentives for established firms to decrease the information gap between network entrepreneurs and local financiers. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-71.

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Date of creation: 2006
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Handle: RePEc:zbw:zewdip:5465

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Related research

Keywords: agglomeration; entrepreneur; dispersion; innovation; local financiers; networks; regional economies; project financing; signaling; start-up;

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References

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  1. Eren Inci, 2007. "Occupational Choice and the Quality of Entrepreneurs," Boston College Working Papers in Economics, Boston College Department of Economics 666, Boston College Department of Economics.
  2. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, American Finance Association, vol. 49(1), pages 3-37, March.
  3. Eren Inci, 2004. "A Model of R&D Tax Incentives," Boston College Working Papers in Economics, Boston College Department of Economics 597, Boston College Department of Economics, revised 09 Oct 2006.
  4. Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  5. Acs, Zoltán J & Audretsch, David B & Braunerhjelm, Pontus & Carlsson, Bo, 2006. "Growth and Entrepreneurship: An Empirical Assessment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5409, C.E.P.R. Discussion Papers.
  6. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
  7. Timothy Bates, 2002. "Analysis of Young Small Firms That Have Closed: Delineating Successful from Unsuccessful Closures," Working Papers 02-24, Center for Economic Studies, U.S. Census Bureau.
  8. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  9. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 179-90, March.
  10. Nicola Brandt, 2004. "Business Dynamics and Policies," OECD Economic Studies, OECD Publishing, OECD Publishing, vol. 2004(1), pages 9-36.
  11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
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Cited by:
  1. Mehmet Bac & Eren Inci, 2010. "The Old-Boy Network and the Quality of Entrepreneurs," CESifo Working Paper Series 3071, CESifo Group Munich.

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