Public policy and venture capital financed innovation: a contract design approach

  • The effects of public policy programs which aim at internalizing spill-overs due to successful innovation are analyzed in a sequential double-sided moral hazard doublesided adverse selection framework. The central focus lies in analyzing their impact on contract design. We show that in our framework only ex post grants are a robust instrument for implementing the first-best situation, whereas the success of guarantee programs, ex ante grants and some types of investment grants depends strongly on the characteristics of the project: in certain cases they not only give no further incentives but even destroy contract mechanisms and so worsen the outcome. JEL Classification: D82, G24, G32, H25, H81

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Author:Julia Hirsch
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2006,29
Series (Serial Number):CFS working paper series (2006, 29)
Document Type:Working Paper
Year of Completion:2006
Year of first Publication:2006
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/02/23
Tag:Asymmetric Information; Contract Design; Moral Hazard; Public Policy; Venture Capital
GND Keyword:Öffentliche Ordnung; Risikokapital; Moral Hazard; Asymmetrische Information
Issue:This Version Dezember 2006
Page Number:67
Version Dezember 2006
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht