Working Paper No. 776

Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process

Published: November 6, 2008Pages: 38Keywords: Venture Capitalists; Innovation; Entrepreneurs; Signaling; Development; M&AJEL-codes: C70; D21; D82; G24; L20; M13; O30
Published version

Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process Simona Fabrizi, Steffen Lippert, Pehr-Johan Norbäck and Lars Persson

In this paper we construct a model in which entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We show that as exacerbated development by better-informed venture-backed rms is used as a signal to enhance the sale price of developed innovations, venture capitalists must be sufciently more ecient in selecting innovative projects than incumbents in order to exist in equilibrium. Otherwise, incumbents undertake early preemptive, acquisitions to prevent the venture-backed rms' signaling-driven investment, despite the risk of buying a bad innovation. We nally show at what point the presence of active venture capitalists increases the incentives for entrepreneurial innovations.


Pehr-Johan Norbäck


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Lars Persson


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

Sick of Inequality.jpg

In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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