Success breeds success locally: a tale of incubator firms

Eren Inci

No 06-071, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper focuses on the pre-establishment period of start-ups in industrial districts. The industrial architecture is what I call a "rationed agglomeration" in which some entrepreneurs gather around an established firm while other entrepreneurs in the same business stand alone. In a rationed agglomeration, I analyze the e¤ects of relations between established firms, network entrepreneurs, and local financiers on the market prices of loans. I show that such relations improve the match of capital to ideas in the network even though the overall distribution of capital to ideas remains unchanged. This suggests that success breeds success in the networks of established firms. The existence of networks overturns the claim that there are no motives to engage in information gathering in a simple market regime with information asymmetries. In particular, I show that there are market incentives for established firms to decrease the information gap between network entrepreneurs and local financiers.

Keywords: agglomeration; entrepreneur; dispersion; innovation; local financiers; networks; regional economies; project financing; signaling; start-up (search for similar items in EconPapers)
JEL-codes: D82 G20 L26 R12 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-bec, nep-ent, nep-geo, nep-his, nep-ppm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:5465

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