Public policy and venture capital financed innovation: A contract design approach

Julia Hirsch

No 2006/29, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: The effects of public policy programs which aim at internalizing spill-overs due to successful innovation are analyzed in a sequential double-sided moral hazard doublesided adverse selection framework. The central focus lies in analyzing their impact on contract design. We show that in our framework only ex post grants are a robust instrument for implementing the first-best situation, whereas the success of guarantee programs, ex ante grants and some types of investment grants depends strongly on the characteristics of the project: in certain cases they not only give no further incentives but even destroy contract mechanisms and so worsen the outcome.

Keywords: Public Policy; Contract Design; Venture Capital; Moral Hazard; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: D82 G24 G32 H25 H81 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200629

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