Complementary Assets, Start-Ups and Incentives to Innovate

33 Pages Posted: 8 Apr 2013

See all articles by Luca Colombo

Luca Colombo

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Date Written: March 1, 2013

Abstract

In this paper we examine to what extent market conditions facilitating start-up formation affect technical change and firms' profits. We consider a model in which R&D efforts of an incumbent firm generate partly tacit technological know-how embodied in a key R&D employee, who might use it to form a start-up. The availability of complementary assets influences whether new firms are created and determine expected profits for start-up-founders. A large availability of complementary assets has the direct effect that the generation of start-ups is fostered. However, as a strategic effect, the incentives of incumbent firms to invest in R&D might be reduced because of the increased danger of knowledge loss occurring through start-up formation. We fully characterize the effects of an increase in the availability of complementary assets, showing under which conditions the effects on innovative activities and industry profits are negative.

Keywords: Tacit Knowledge, Complementary Assets, Technological Change, R&D Effort, Start-Up Creation

JEL Classification: L20, M13, O32

Suggested Citation

Colombo, Luca and Dawid, Herbert, Complementary Assets, Start-Ups and Incentives to Innovate (March 1, 2013). Bielefeld Working Papers in Economics and Management No. 07-2013, Available at SSRN: https://ssrn.com/abstract=2246648 or http://dx.doi.org/10.2139/ssrn.2246648

Luca Colombo (Contact Author)

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance ( email )

Largo Gemelli 1
20123 Milano
Italy

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

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