Optimal Public Policy for Venture Capital Backed Innovation

Christian Keuschnigg

No 3850, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper discusses the role of public policy towards the venture capital industry. The model emphasises four margins: supply of entrepreneurs due to career choice, entry of venture capital funds and search for investment opportunities, simultaneous entrepreneurial effort and managerial advice subject to double moral hazard, and mark-up pricing when the successful firm introduces a new good. The Paper derives an optimal policy that succeeds to implement a first best allocation in decentralized equilibrium. It also considers short- and long-run comparative static and welfare effects of piecemeal reform with regard to the capital gains tax, innovation subsidy, public R&D spending and other policy initiatives.

Keywords: Innovation; Venture capital; Double moral hazard; Public policy (search for similar items in EconPapers)
JEL-codes: D82 G24 H21 H25 H32 (search for similar items in EconPapers)
Date: 2003-03
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Working Paper: Optimal Public Policy For Venture Capital Backed Innovation (2003)
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