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Animal Spirits in Entrepreneurial Innovation: Theory and Evidence

Angela Cipollone () and Paolo Giordani

No 1201, Working Papers CELEG from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This paper proposes and empirically tests a theory of entrepreneurial innovation in order to explain its high degree of concentration in space and time. In the model, a successful entrepreneurial project is the result of a search and matching process between entrepreneurs looking for funds and capitalists looking for new ideas to finance. The resulting strategic complementarity between them gives rise to a multiplier effect, whereby any exogenous shock has a magnified effect on the process of innovation. Moreover, if complementarity is sufficiently strong, multiple equilibria arise, which are characterized by different levels of entrepreneurial activity. Using data from the European and the US business angels markets for the period 1996-2010, we show that (i) a complementarity exists between business angels and the entrepreneurial projects submitted to them, and that (ii) the result of multiple equilibria is empirically plausible.

Keywords: Entrepreneurship; financing of innovation; search and matching; strategic complementarities; venture capital; business angels. (search for similar items in EconPapers)
JEL-codes: C78 D83 L26 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ino, nep-ppm and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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