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Do Thick Venture Capital Markets Foster Innovation$\_?$ A Strategic Analysis

Author

Listed:
  • Luca Colombo

    () (Instituto di Economia e Finanza Universita Cattolica del Sacro Cuore)

  • Herbert Dawid

    (Bielefeld University)

Abstract

In this paper we examine how far the availability of venture capital influences the speed of technological progress in an industrial agglomeration. We consider a model where R\&D efforts of an incumbent firm generates technological know-how embodied in key R\&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R\&D might be reduced and, second, the generation of spinoff firms, which leads to the diffusion and duplication of know-how, might be fostered. The trade-off between these two effects is first studied in the framework of a static game-theoretic analysis and then in a dynamic agent-based simulation model.

Suggested Citation

  • Luca Colombo & Herbert Dawid, 2006. "Do Thick Venture Capital Markets Foster Innovation$\_?$ A Strategic Analysis," Computing in Economics and Finance 2006 216, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:216
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    Cited by:

    1. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2010. "Constitutional Reforms, Fiscal Decentralization and Regional Fiscal Flows in Italy," Chapters,in: The Political Economy of Inter-Regional Fiscal Flows, chapter 4 Edward Elgar Publishing.
    2. Luca Colombo & Herbert Dawid & Kordian Kabus, 2012. "When do thick venture capital markets foster innovation? An evolutionary analysis," Journal of Evolutionary Economics, Springer, vol. 22(1), pages 79-108, January.

    More about this item

    Keywords

    Venture Capital; Technological Progress; R&D efforts; Spinoffs;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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