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How do business startup modes affect economic growth?
Author(s) -
Davis Colin,
Zhao Laixun
Publication year - 2019
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12417
Subject(s) - venture capital , incentive , affect (linguistics) , welfare , business , mode (computer interface) , ranking (information retrieval) , entrepreneurship , capital (architecture) , industrial organization , finance , economics , microeconomics , monetary economics , market economy , linguistics , philosophy , archaeology , machine learning , computer science , history , operating system
This paper examines researchers’ choices between either collaborating with venture capitalists or going independent when investing in research (e.g., labs, scientists, equipment, perishable materials, etc.) and how their interaction affects long‐run growth in an economy characterized by incomplete contracts and financial market imperfections. We find that venture capital is more likely to be selected by entrepreneurs when startup risks are median to high. A ranking of the welfares associated with each startup mode under different legal and financial environments shows that economic policy and research incentives may not always align as entrepreneurs may not select the mode that provides the highest welfare level.