Template-Type: ReDIF-Paper 1.0
Author-Name: Luca Colombo
Author-X-Name-First: Luca 
Author-X-Name-Last: Colombo
Author-Email: lucava.colombo@unicatt.it
Author-Workplace-Name: DISCE, Università Cattolica
Author-Name: Herbert Dawid
Author-X-Name-First: Herbert
Author-X-Name-Last: Dawid
Author-Email: hdawid@wiwi.uni-bielefeld.de
Author-Workplace-Name: Bielefeld University
Author-Name: Kordian Kabus
Author-X-Name-First: Kordian
Author-X-Name-Last: Kabus
Author-Email: kordian.kabus@uni-bielefeld.de
Author-Workplace-Name: Bielefeld University
Title: When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis
Abstract: In this paper we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982) where R&D efforts of an incumbent firm generate 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, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent's innovation efforts. We study how this tradeoff influences the effect of venture capital on the innovation expenditures, speed of technological change and the evolution of industry concentration in several scenarios with different industry characteristics.
Length: nn pages 24
Creation-Date: 2007-03

File-URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0074.pdf
File-Format: Application/pdf
File-Function: First version, 2006
Number: ief0074
Classification-JEL: O30, J30, L20 
Keywords: Venture Capital, Technological Progress, R&D Effort, Spinoff, Industry Evolution
Handle: RePEc:ctc:serie3:ief0074