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Contractual Execution, Strategic Incompleteness and Venture Capital

Roberta Dessi

No 09-075, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Contractual execution generates hard information, available to the contracting parties, even when contracts are secretly executed. Building on this simple observation, the paper shows that incomplete contracts can be preferred to complete contracts. This is because (i) execution of incomplete contracts reveals less information to outside parties, giving rise to strategic gains; (ii) secretly executed complete contracts could not do better, given the possible strategic uses of the hard information generated by execution of the contract. The key effects at work are explored in the case of financial contracts for innovative start-up companies, providing a rationale for the observed differences in the extent to which venture capital contracts include a variety of contingencies, and for how this varies across industries and geographically.

JEL-codes: D82 D86 G24 L22 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-bec and nep-cta
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Working Paper: Contractual Execution, Strategic Incompleteness and Venture Capital (2009) Downloads
Working Paper: Contractual Execution, Strategic Incompleteness and Venture Capital (2009) Downloads
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