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Public Policy for Venture Capital

Author

Listed:
  • Christian Keuschnigg
  • Søren Bo Nielsen
Abstract
This paper proposes a simple partial equilibrium model to investigate the effects of government policy on venture capital backed investments. Giving up an alternative career, entrepreneurs focus their effort on a single, high risk venture each. Venture capitalists acquire an equity stake and offer a base salary as well. In addition to providing incentive compatible equity finance, they support the venture with managerial advice to raise survival chances. We analyze several policy measures addressed at venture capital activity: government spending on entrepreneurial training, subsidies to equipment investment, and output subsidies at the production stage. While these measures stimulate entrepreneurship, only cost-effective government services can improve welfare.

Suggested Citation

  • Christian Keuschnigg & Søren Bo Nielsen, 2001. "Public Policy for Venture Capital," CESifo Working Paper Series 486, CESifo.
    • Handle: RePEc:ces:ceswps:_486
    as

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    References listed on IDEAS

    as
    1. Kanniainen, Vesa & Keuschnigg, Christian, 2003. "The optimal portfolio of start-up firms in venture capital finance," Journal of Corporate Finance, Elsevier, vol. 9(5), pages 521-534, November.
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    Full references (including those not matched with items on IDEAS)

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