Entrepreneurs and New Ideas

42 Pages Posted: 15 Jul 2003

See all articles by Bruno Biais

Bruno Biais

Centre for Economic Policy Research (CEPR)

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

Innovative ideas are novel combinations of productive resources potentially addressing an economic need (Schumpeter, 1926). Even promising ideas can be unprofitable if the proposed combination fails on at least one dimension, e.g., it is technically unfeasible or does not respond to a genuine customer need. To screen good ideas the entrepreneur needs to hire experts who evaluate the idea along their dimensions of expertise. Yet sharing the idea creates the risk that an expert would steal it. In this case, the idea-thief cannot contact any other expert, lest he should in turn steal the idea. Thus idea stealing leads to incomplete screening and is unattractive if the information of the other expert is critical or highly complementary. In such cases the entrepreneur can form a partnership with the experts. Yet very valuable ideas cannot be shared because it is too tempting to steal them.

Keywords: Entreprenuership, innovation, experts, information aggregation, venture capital, ideas

JEL Classification: G31

Suggested Citation

Biais, Bruno and Perotti, Enrico C., Entrepreneurs and New Ideas (January 2006). Available at SSRN: https://ssrn.com/abstract=424601 or http://dx.doi.org/10.2139/ssrn.424601

Bruno Biais (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Enrico C. Perotti

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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