Innovation, Spillovers and Venture Capital Contracts

37 Pages Posted: 20 Jan 2012

See all articles by Roberta Dessi

Roberta Dessi

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ)

Date Written: January 2012

Abstract

Innovative start-ups and venture capitalists are highly clustered, benefiting from localized spillovers: Silicon Valley is perhaps the best example. There is also substantial geographical variation in venture capital contracts: California contracts are more 'incomplete'. This paper explores the economic link between these observations. In the presence of significant spillovers, it becomes optimal for an innovative start-up and its financier to adopt contracts with fewer contingencies: these contracts maximize their ability to extract (part of) the surplus they generate through positive spillovers. This relaxes ex-ante financing constraints and makes it possible to induce higher innovative effort.

Keywords: incomplete contracts, innovation, spillovers, venture capital

JEL Classification: D82, D86, G24, L22

Suggested Citation

Dessi, Roberta, Innovation, Spillovers and Venture Capital Contracts (January 2012). CEPR Discussion Paper No. DP8731, Available at SSRN: https://ssrn.com/abstract=1988663

Roberta Dessi (Contact Author)

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

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