Optimal Public Policy for Venture Capital Backed Innovation
61 Pages Posted: 28 May 2003
There are 2 versions of this paper
Optimal Public Policy for Venture Capital Backed Innovation
Date Written: March 2003
Abstract
This Paper discusses the role of public policy towards the venture capital industry. The model emphasises four margins: supply of entrepreneurs due to career choice, entry of venture capital funds and search for investment opportunities, simultaneous entrepreneurial effort and managerial advice subject to double moral hazard, and mark-up pricing when the successful firm introduces a new good. The Paper derives an optimal policy that succeeds to implement a first best allocation in decentralized equilibrium. It also considers short- and long-run comparative static and welfare effects of piecemeal reform with regard to the capital gains tax, innovation subsidy, public R&D spending and other policy initiatives.
Keywords: Innovation, venture capital, double moral hazard, public policy
JEL Classification: D82, G24, H21, H25, H32
Suggested Citation: Suggested Citation
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