SPINOFFS AND THE MARKET FOR IDEAS

Satyajit Chatterjee () and Esteban Rossi‐Hansberg
Authors registered in the RePEc Author Service: Esteban Rossi-Hansberg

International Economic Review, 2012, vol. 53, issue 1, 53-93

Abstract: We present a theory of entry through spinoffs where workers generate ideas and possess private information concerning their quality. Because quality is privately observed, adverse selection implies that the market can only offer a price that reflects the average quality of ideas sold. Only workers with good ideas decide to spin off, whereas workers with mediocre ideas sell them. Existing firms pay a price for ideas sold in the market that implies zero expected profits. Hence, firms’ project selection is independent of firm size, which can lead to scale‐independent growth. This mechanism results in invariant firm‐size distributions that resemble the data.

Date: 2012
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Citations: View citations in EconPapers (22)

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https://doi.org/10.1111/j.1468-2354.2011.00671.x

Related works:
Working Paper: Spinoffs and the market for ideas (2008)
Working Paper: Spin-offs and the market for ideas (2007)
Working Paper: Spin-offs and the Market for Ideas (2007)
Working Paper: Spin-offs and the Market for Ideas (2007)
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