We analyze incentives to develop entrepreneurial ideas for venture capitalists (VCs) and incumbent firms. If VCs are sufficiently better at judging an idea's value and if it is sufficiently more costly to patent low than high value ideas, VCs acquire valuable ideas, develop them beyond the level...

This paper investigates how patent applications and grants held by new ventures improve their ability to attract venture capital (VC) financing. We argue that investors are faced with considerable uncertainty and therefore rely on patents as signals when trying to assess the prospects of...

Innovative new ventures fail if they cannot attract resources needed to commercialise new ideas and inventions. Obtaining external resources is a central issue for nascent entrepreneurs - people who are in the process of starting new ventures. We argue in this paper that, a way to deal with this...

What explains the world-wide trend of pro-entrepreneurial policies? We study entrepreneurial policy in a lobbying model taking into account the conflict of interest between entrepreneurs and incumbents. It is shown that international market integration leads to more pro-entrepreneurial policies....

R&D incentives of new entrants to a market may be shaped by the prospects of being acquired by an incumbent. In this paper, we analyze a two-stage innovation game between one incumbent and a large number of entrants. In the first stage, firms compete to develop innovations of high quality. They...

In industries with network effects, incumbents’ installed bases create barriers to entry that discourage entrepreneurs from developing new innovations. Yet, entry is not the only commercialization route for entrepreneurs. We show that the option of selling to an incumbent increases innovation...

Policy makers typically interpret positive relations between venture capital investments and innovations as an evidence that venture capital investments stimulate innovation ('VC-first hypothesis'). This interpretation is, however, one-sided because there may be a reverse causality that...

For the sample period of 1965-1992, Kortum and Lerner (2000) find that venture capital (VC) investments have a positive impact on patent count at industry level, and this impact is larger than that of R&D expenditures. We confirm that this positive impact continued to be present and became even...

In our model multiple innovators compete against each other by submitting investment proposals to an investor. The investor chooses the least expensive proposal and when to invest in it. Innovators have to provide costly effort and they learn privately the cost of investing. Multiple efforts...

We estimate the effect on economic development of China's industrial policy, in particular, the establishment of Special Economic Zones (SEZ). We use data from a panel of 276 Chinese cities and prefectures from 1988 to 2010. Our difference-in-difference estimator exploits the variation in the...