When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis

Luca Vittorio Angelo Colombo, Herbert Dawid, Kordian Kabus

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

5 Citazioni (Scopus)

Abstract

In this paper we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982) where R&D efforts of an incumbent firm generate 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, so that 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, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent's innovation efforts. We study how this tradeoff influences the effect of venture capital on innovation expenditures, speed of technological change and evolution of industry concentration in several scenarios with different industry characteristics.
Lingua originaleEnglish
pagine (da-a)79-108
Numero di pagine30
RivistaJournal of Evolutionary Economics
Volume2012
DOI
Stato di pubblicazionePubblicato - 2012

Keywords

  • Industry Evolution
  • R&D Effort
  • Spinoff
  • Technological Progress
  • Venture Capital

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