Government venture capital research: fake science and bad public policy

Douglas Cumming and Sofia Johan

Venture Capital, 2019, vol. 21, issue 1, 121-131

Abstract: We review statistical methods used to estimate the impact of crowding out of private venture capital (VC) by government VC. We review three types of failures that have plagued the VC literature and resulted in policy implications that are precisely the opposite of what the data actually indicate. The first failure involves the mistaken use of measures that give rise to country rankings where the best VC markets in the world are countries like Austria and Hungary, and the worst VC market in the world is the U.K. The second and more recent failure involves the use of data that do not predate the creation of government VC. The third type of failure involves not accounting for the nonrandom matching between entrepreneurs and government VC programs. We show that statistical inference in recent work that makes this latter mistake can give rise to remarkably incorrect conclusions; including, for example, a bizarre and clearly false inference that a market with more than 89% investment by government funds exhibits no evidence of displacement of private funds. In view of these issues, we offer suggestions for future research and raise some new questions that could guide policymakers in the future.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/13691066.2018.1558508 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:veecee:v:21:y:2019:i:1:p:121-131

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TVEC20

DOI: 10.1080/13691066.2018.1558508

Access Statistics for this article

Venture Capital is currently edited by Colin Mason and Richard T. Harrison

More articles in Venture Capital from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().