IDEAS home Printed from
   My bibliography  Save this paper

Financial Risks and Research Contracts in a Model of Endogenous Growth


  • Colin Davis

    (Faculty of Economics, Kobe University, Japan)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)


This paper examines researchers' choices between either collaborating with venture capitalists (Regime C) or going independently (Regime I), and how their interaction affects long-run endogenous growth, in an economy characterized by incomplete contracts and financial market imperfections. Both research and production require labor and physical capital. We find that an improvement in financial regulation leads to a higher rate of innovation under Regime I. In contrast, an improvement in R&D incentives for researchers in Regime C can coincide with either an increase or a decrease in the long-run rate of innovation, due to the holdup problem in post bargaining over created value. We also rank the growth rates in the two regimes under different contractual and financial environments. Finally, we find that conflicts can arise when entrepreneurs choose one regime based on investment incentives but the other regime provides a higher growth rate.

Suggested Citation

  • Colin Davis & Laixun Zhao, 2010. "Financial Risks and Research Contracts in a Model of Endogenous Growth," Discussion Paper Series DP2010-08, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2010-08

    Download full text from publisher

    File URL:
    File Function: First version, 2010
    Download Restriction: no

    More about this item


    Firm-asymmetry; Endogenous Growth; R&D; Incomplete Contracts; Financial Imperfection;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kob:dpaper:dp2010-08. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Office of Promoting Research Collaboration, Research Institute for Economics & Business Administration, Kobe University). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.