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Innovation, Spillovers and Venture Capital Contracts

Roberta Dessi

No 8731, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Innovative start-ups and venture capitalists are highly clustered, benefiting from localized spillovers: Silicon Valley is perhaps the best example. There is also substantial geographical variation in venture capital contracts: California contracts are more 'incomplete'. This paper explores the economic link between these observations. In the presence of significant spillovers, it becomes optimal for an innovative start-up and its financier to adopt contracts with fewer contingencies: these contracts maximize their ability to extract (part of) the surplus they generate through positive spillovers. This relaxes ex-ante financing constraints and makes it possible to induce higher innovative effort.

Keywords: incomplete contracts; innovation; spillovers; venture capital (search for similar items in EconPapers)
JEL-codes: D82 D86 G24 L22 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-cta, nep-ent, nep-ino, nep-sbm and nep-ure
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Working Paper: Innovation, Spillovers and Venture Capital Contracts (2013) Downloads
Working Paper: Innovation, Spillovers and Venture Capital Contracts (2013) Downloads
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