A Search Model of Venture Capital, Entrepreneurship, and Unemployment

Robin Boadway (), Oana Secrieru () and Marianne Vigneault

Working Papers from Bank of Canada

Abstract: The authors develop a search model of venture capital in which the number of successful matches of entrepreneurs and venture capitalists (VCs) at any moment in time is a function of the number of entrepreneurs searching for funds, the number of VCs searching for entrepreneurs, and the number of vacancies posted by each VC. The authors extend the literature by incorporating search unemployment and they explicitly model the occupational choice of individuals to become workers or entrepreneurs. Their analysis shows that, in the market equilibrium, the level of advice VCs offer is inefficiently low compared with the social optimum. Furthermore, the number of vacancies, the level of employment, and the number of potential entrepreneurs are generally either too low or too high relative to their socially optimal level. Policy to achieve the social optimum consists of a capital gains subsidy, an employment tax or subsidy, and an investment tax or subsidy.

Keywords: Financial markets; Fiscal policy; Labour markets (search for similar items in EconPapers)
JEL-codes: D82 G18 G24 H21 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ent, nep-fin and nep-pbe
Date: 2005
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