Do Thick Venture Capital Markets Foster Innovation$\_?$ A Strategic Analysis
Luca Colombo () and
No 216, Computing in Economics and Finance 2006 from Society for Computational Economics
In this paper we examine how far the availability of venture capital influences the speed of technological progress in an industrial agglomeration. We consider a model where R\&D efforts of an incumbent firm generates technological know-how embodied in key R\&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R\&D might be reduced and, second, the generation of spinoff firms, which leads to the diffusion and duplication of know-how, might be fostered. The trade-off between these two effects is first studied in the framework of a static game-theoretic analysis and then in a dynamic agent-based simulation model.
Keywords: Venture Capital; Technological Progress; R&D efforts; Spinoffs (search for similar items in EconPapers)
JEL-codes: J30 L20 O30 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:216
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