Animal Spirits and Entrepreneurial Innovation: Theory and Evidence
This paper proposes and empirically tests a theory of entrepreneurial innovation to explain its high degree of concentration in space and time. In the model, a successful entrepreneurial project is the result of a search and matching process between entrepreneurs looking for funds and capitalists looking for new ideas to finance. The resulting strategic complementarity between them gives rise to a multiplier effect. Moreover, if complementarity is sufficiently strong, multiple equilibria arise, which can be ranked in terms of entrepreneurial activity. Using data from the European and the US business angels markets for the period 1996-2010, we show that (ii) a complementarity exists between business angels and the entrepreneurial projects submitted to them, and that (ii) the result of multiple equilibria is empirically plausible.
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