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Public Policy for Venture Capital

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  • Christian Keuschnigg
  • Soren Nielsen

Abstract

This paper proposes a simple partial equilibrium model to investigate the effects of government policy on venture capital backed investments. Giving up an alternative career, entrepreneurs focus their effort on a single, high risk venture each. Venture capitalists acquire an equity stake and offer a base salary as well. In addition to providing incentive compatible equity finance, they support the venture with managerial advice to raise survival chances. We analyze several policy measures addressed at venture capital activity: government spending on entrepreneurial training, subsidies to equipment investment, and output subsidies at the production stage. While these measures stimulate entrepreneurship, only cost-effective government services can improve welfare. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Christian Keuschnigg & Soren Nielsen, 2001. "Public Policy for Venture Capital," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 557-572, August.
  • Handle: RePEc:kap:itaxpf:v:8:y:2001:i:4:p:557-572
    DOI: 10.1023/A:1011251920041
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