Innovation, Spillovers and Venture Capital Contracts

Roberta Dessi

No 684, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: IInnovative start-ups and venture capitalists are highly clustered: Silicon Valley is probably the best-known example. Clusters differ in the contracts they use, and in how they perform. I explore the link between spillovers, contractual design and performance. I find that more "incomplete" contracts, with fewer contingencies linking entrepreneurs’ rewards to performance benchmarks, become optimal when positive spillovers are large. The contracts enable the innovative entrepreneur and his investor to extract some of the surplus they generate through positive spillovers for new entrants. This provides a new rationale for contractual incompleteness, and may help to explain observed contractual practice in Silicon Valley

Keywords: innovation; spillovers; venture capital; incomplete contracts (search for similar items in EconPapers)
JEL-codes: D82 D86 G24 L22 (search for similar items in EconPapers)
Date: 2011-12, Revised 2013-12
New Economics Papers: this item is included in nep-cse, nep-cta, nep-ent, nep-ino, nep-sbm and nep-ure
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Related works:
Working Paper: Innovation, Spillovers and Venture Capital Contracts (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:24941

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