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Complementary Assets, Start-Ups and Incentives to Innovate

  • Luca Colombo

    ()

    (DISCE, Università Cattolica)

  • Herbert Dawid

    ()

    (Universität Bielefeld)

In this paper we examine in a game theoretic framework in how far market conditions facilitating start-up formation positively affect technical change and firms' profits. We consider a model in which R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to form a start-up. Market conditions, in particular the availability of complementary assets, influence whether new firms are created and determine expected profits for start-up-founders. Easy availability of complementary assets has the direct effect that the generation of start-ups, which leads to the diffusion and duplication of know-how, is fostered. However, incentives of incumbent firms to invest in R&D might be reduced because of the increased danger of knowledge loss through spin-out formation. We fully characterize the effects of an increase in the availability of complementary assets, demonstrating that under certain market conditions the effects on innovative activities and industry profits can be negative.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0080.pdf
File Function: First version, 2008
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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0080.

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Length: nn pages 28
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:ctc:serie3:ief0080
Contact details of provider: Web page: http://www.unicatt.it/Istituti/EconomiaFinanzaEmail:


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  1. Mariagiovanna Baccara & Ronny Razin, 2004. "Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights," Levine's Working Paper Archive 122247000000000194, David K. Levine.
  2. Thomas Hellmann, 2007. "When Do Employees Become Entrepreneurs?," Management Science, INFORMS, vol. 53(6), pages 919-933, June.
  3. Bharat N. Anand & Alexander Galetovic, 2000. "Weak Property Rights and Holdup in R&D," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 615-642, December.
  4. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78 National Bureau of Economic Research, Inc.
  5. Michael S. Dahl & Christian Ø.R. Pedersen & Bent Dalum, 2003. "Entry by Spinoff in a High-tech Cluster," DRUID Working Papers 03-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  6. Steven Klepper & Sally Sleeper, 2005. "Entry by Spinoffs," Management Science, INFORMS, vol. 51(8), pages 1291-1306, August.
  7. Audretsch, David B. & Feldman, Maryann P., 2004. "Knowledge spillovers and the geography of innovation," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 61, pages 2713-2739 Elsevier.
  8. Klepper, Steven, 2001. "Employee Startups in High-Tech Industries," Industrial and Corporate Change, Oxford University Press, vol. 10(3), pages 639-74, September.
  9. Anton, James J & Yao, Dennis A, 1994. "Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 84(1), pages 190-209, March.
  10. Hans Gersbach & Armin Schmutzler, 2003. "Endogenous spillovers and incentives to innovate," Economic Theory, Springer, vol. 21(1), pages 59-79, 01.
  11. Cooper, Arnold C. & Woo, Carolyn Y. & Dunkelberg, William C., 1989. "Entrepreneurship and the initial size of firms," Journal of Business Venturing, Elsevier, vol. 4(5), pages 317-332, September.
  12. Pamela Mueller, 2007. "Exploiting Entrepreneurial Opportunities: The Impact of Entrepreneurship on Growth," Small Business Economics, Springer, vol. 28(4), pages 355-362, April.
  13. Bharant N. Anand & Alexander Galetovic, 1998. "Weak Property Rights and hold-up in R&D," Documentos de Trabajo 39, Centro de Economía Aplicada, Universidad de Chile.
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