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Search and the market for ideas

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  • Silveira, Rafael
  • Wright, Randall

Abstract

We study a market where innovators, who are good at coming up with ideas, can sell them to entrepreneurs, who might be better at implementing them. The market is decentralized, with random matching and bargaining. Ideas are characterized by five salient features: they are indivisible; partially nonrival; intermediate inputs; subject to informational frictions; and difficult to collateralize. This last feature gives rise to a demand by entrepreneurs for liquidity. We determine which ideas get traded in equilibrium and compare this to the efficient outcome, emphasizing the impact of bargaining and liquidity considerations. Among other applications, we study how outcomes in the idea market affect the labor market.

Suggested Citation

  • Silveira, Rafael & Wright, Randall, 2010. "Search and the market for ideas," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1550-1573, July.
  • Handle: RePEc:eee:jetheo:v:145:y:2010:i:4:p:1550-1573
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Han, Han, 2015. "Over-the-Counter Markets, Intermediation, and Monetary Policy," MPRA Paper 68709, University Library of Munich, Germany.
    2. Randall Wright & Cathy Zhang & Guillaume Rocheteau, 2016. "Corporate Finance and Monetary Policy," 2016 Meeting Papers 97, Society for Economic Dynamics.
    3. Berentsen, Aleksander & Rojas Breu, Mariana & Shi, Shouyong, 2012. "Liquidity, innovation and growth," Journal of Monetary Economics, Elsevier, pages 721-737.
    4. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
    5. Angela, Cipollone & Paolo E., Giordani, 2016. "When Entrepreneurs Meet Financiers: Evidence from the Business Angel Market," MPRA Paper 69545, University Library of Munich, Germany.
    6. Jan Zabojnik, 2016. "Firm Reputation and Employee Startups," Working Papers 1362, Queen's University, Department of Economics.
    7. Jonathan Chiu & Cesaire Meh & Randall Wright, 2017. "Innovation And Growth With Financial, And Other, Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 95-125, February.
    8. Moscarini, Giuseppe & Wright, Randall, 2010. "Introduction to Search Theory and Applications," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1319-1324, July.
    9. Paolo Giordani, 2015. "Entrepreneurial finance and economic growth," Journal of Economics, Springer, vol. 115(2), pages 153-174, June.
    10. 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.
    11. Sylvia Xiao & Randall Wright & Guillaume Rocheteau, 2017. "Open Market Operations," 2017 Meeting Papers 345, Society for Economic Dynamics.
    12. repec:eee:jetheo:v:169:y:2017:i:c:p:551-602 is not listed on IDEAS
    13. Angela Cipollone & Paolo E. Giordani, 2015. "Market Frictions in Entrepreneurial Innovation: Theory and Evidence," Working Papers CELEG 1505, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    14. Rafael Silveira & Randall Wright, 2016. "Venture Capital: A Model of Search and Bargaining," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 232-246, January.
    15. Kurmann, André, 2014. "Holdups and overinvestment in capital markets," Journal of Economic Theory, Elsevier, vol. 151(C), pages 88-113.
    16. Dimitris Papanikolaou, 2015. "Cooperation Cycles: A theory of endogenous investment shocks," 2015 Meeting Papers 71, Society for Economic Dynamics.
    17. Lee, Sang Yoon Tim, 2012. "Entrepreneurs, Managers and Inequality," Working Papers 12-15, University of Mannheim, Department of Economics.

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