Why does venture capital work in some countries but not in others? This clinical study of the first German venture capital firm examines the difficulties of creating a venture capital market in a bank-based financial system. The analysis identifies the problem of creating appropriate governance...

In their 1981 model, Stiglitz and Weiss demonstrated that there may be credit rationing in markets with adverse selection. Work by Cho and DeMeza and Webb has subsequently shown that rationing would disappear in the 1981 model if entrepreneurs seek funds on an equity market, rather than on a...

We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of continental European industrialization, Gerschenkron and Schumpeter argued that banks promoted the creation of new industries. We formalize this role of banks by introducing...

This paper surveys the main policy debates on financial sector development. It provides a framework for understanding the main functions of the financial system, emphasizing informational problems and their efficient resolution through accumulation of reputational capital and the development of...

This paper asks the question under what circumstances banks have incentives to increase the deposit collection, when the deposit market is not fully penetrated, i.e. when there is low financial depths. We compare outcomes under a perfectly competitive deposit market with outcomes under financial...

Much of the recent growth and development literature is based on the notion that economies may exhibit multiple equilibria. An economy may get stuck in a vicious circle of poverty as a result of a coordination failure. Little attention has been given to which economic institutions may solve such...

This paper examines an ex-post rationale for the patenting of scientific discoveries. In this model,scientist do not know which firms can make use of their discoveries, and firms do not know whichscientific discoveries might be useful to them. To bridge this gap, either or both sides need to...

The importance of an investor's organizational structure is increasingly recognized in modern finance. This paper examines the role of banks in the US venture capital market. Theory suggests that unlike independent venture capital firms, banks can seek complementarities between their venture...