2026-09-26T17:44:16Zhttps://dspace.mit.edu/server/oai/requestoai:dspace.mit.edu:1721.1/84152022-01-13T07:54:28Zcom_1721.1_7582com_1721.1_7581col_1721.1_131022
Daron Acemoglu and Olivier Blanchard.
Landier, Augustin
Massachusetts Institute of Technology. Dept. of Economics.
Massachusetts Institute of Technology. Department of Economics
2005-08-23T20:00:42Z
2005-08-23T20:00:42Z
2002
2002
http://hdl.handle.net/1721.1/8415
50602122
Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Economics, 2002.
Includes bibliographical references.
The first chapter studies Entrepreneurship and the Stigma of Failure. Entrepreneurial activity varies substantially across countries and sectors and appears to be related to the stigma of failure. To understand this phenomenon, I present a multiple-equilibrium model based on endogenous stigma of failure. Using private information, entrepreneurs choose whether to continue a project or to abandon it and raise funds to undertake a new project. Project outcomes depend on luck and ability, and the cost of capital for failed entrepreneurs is determined by the market's expectations about their ability. In the conservative equilibrium failed entrepreneurs face a high cost of capital and thus good entrepreneurs are reluctant to terminate a project. The resulting low quality of the pool of failed entrepreneurs justifies in turn the high cost of capital. The reverse is true in the experimental equilibrium where good entrepreneurs are more willing to start again and the cost of capital for failed entrepreneurs is low. The equilibria differ in the level and nature of entrepreneurial activity, with riskier projects undertaken in the experimental equilibrium. I discuss the relative efficiency of the two equilibria and study from this perspective the role of financial structure and legal environment such as bankruptcy rules and fresh start policy. The second Chapter examines institutions and contracts for start-up finance. I develop a model in which entrepreneurs and investors can hold-up each other once the venture is under way: investors can deny further funding, and entrepreneurs can withdraw from the venture.
(cont.) The entrepreneurs' exit option determines which party needs protection. If the exit option is good, venture capital financing protects the investor through technological monitoring, control rights, and staged financing. If the exit option is bad, bank debt protects the entrepreneur as it involves little technological monitoring, limited control rights, and committed finance. The exit option depends on the legal environment and on the stigma of failure, endogenized in a career concern model. When entrepreneurs can choose project risk, multiple equilibria arise with different financial institutions. Venture capital prevails in the high-risk equilibrium and bank debt in the low-risk equilibrium. The paper investigates why the forms of start-up financing differ across sectors, regions and countries. It offers an explanation for why venture capital has been more prevalent in the US than in Europe. The theory has implications for policy, e.g., regarding the efficiency of non-compete agreements and bankruptcy law. The third chapter, cowritten with Olivier Blanchard, addresses the question of the welfare effects of partial flexibilization of the labor market. Rather than decrease firing costs across the board, a number of European countries have allowed firms to hire workers on fixed-term contracts. At the end of a given term, these contracts can be terminated at little or no cost. If workers are kept on however, the contracts become subject to normal firing costs. We argue in this paper that the effects of such a partial reform of employment protection may be perverse. The main effect may be high turnover in entry-level jobs, leading in turn to higher, not lower, unemployment ...
by Augustin Landier.
Ph.D.
104, [10] p.
7653488 bytes
7653247 bytes
application/pdf
application/pdf
eng
Massachusetts Institute of Technology
M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.
http://dspace.mit.edu/handle/1721.1/7582
Economics.
Essays on entrepreneurship, venture capital and innovation
Thesis
application/pdf
false
Publication
unknown
unknown
<Publication xmlns="https://www.openaire.eu/cerif-profile/1.1/" id="66768926-f087-4b03-bd04-ca340ea995d5">
<Type xmlns="https://www.openaire.eu/cerif-profile/vocab/COAR_Publication_Types">http://purl.org/coar/resource_type/c_1843</Type>
<Language>eng</Language>
<Title>Essays on entrepreneurship, venture capital and innovation</Title>
<PublishedIn>
<Publication>
</Publication>
</PublishedIn>
<PublicationDate>2002</PublicationDate>
<Authors>
<Author>
<DisplayName>Landier, Augustin</DisplayName>
<Affiliation>
<OrgUnit>
</OrgUnit>
</Affiliation>
</Author>
</Authors>
<Editors>
</Editors>
<Publishers>
<Publisher>
<DisplayName>Massachusetts Institute of Technology</DisplayName>
<OrgUnit />
</Publisher>
</Publishers>
<License>http://dspace.mit.edu/handle/1721.1/7582</License>
<Keyword>Economics.</Keyword>
<Abstract>The first chapter studies Entrepreneurship and the Stigma of Failure. Entrepreneurial activity varies substantially across countries and sectors and appears to be related to the stigma of failure. To understand this phenomenon, I present a multiple-equilibrium model based on endogenous stigma of failure. Using private information, entrepreneurs choose whether to continue a project or to abandon it and raise funds to undertake a new project. Project outcomes depend on luck and ability, and the cost of capital for failed entrepreneurs is determined by the market's expectations about their ability. In the conservative equilibrium failed entrepreneurs face a high cost of capital and thus good entrepreneurs are reluctant to terminate a project. The resulting low quality of the pool of failed entrepreneurs justifies in turn the high cost of capital. The reverse is true in the experimental equilibrium where good entrepreneurs are more willing to start again and the cost of capital for failed entrepreneurs is low. The equilibria differ in the level and nature of entrepreneurial activity, with riskier projects undertaken in the experimental equilibrium. I discuss the relative efficiency of the two equilibria and study from this perspective the role of financial structure and legal environment such as bankruptcy rules and fresh start policy. The second Chapter examines institutions and contracts for start-up finance. I develop a model in which entrepreneurs and investors can hold-up each other once the venture is under way: investors can deny further funding, and entrepreneurs can withdraw from the venture.</Abstract>
<Abstract>(cont.) The entrepreneurs' exit option determines which party needs protection. If the exit option is good, venture capital financing protects the investor through technological monitoring, control rights, and staged financing. If the exit option is bad, bank debt protects the entrepreneur as it involves little technological monitoring, limited control rights, and committed finance. The exit option depends on the legal environment and on the stigma of failure, endogenized in a career concern model. When entrepreneurs can choose project risk, multiple equilibria arise with different financial institutions. Venture capital prevails in the high-risk equilibrium and bank debt in the low-risk equilibrium. The paper investigates why the forms of start-up financing differ across sectors, regions and countries. It offers an explanation for why venture capital has been more prevalent in the US than in Europe. The theory has implications for policy, e.g., regarding the efficiency of non-compete agreements and bankruptcy law. The third chapter, cowritten with Olivier Blanchard, addresses the question of the welfare effects of partial flexibilization of the labor market. Rather than decrease firing costs across the board, a number of European countries have allowed firms to hire workers on fixed-term contracts. At the end of a given term, these contracts can be terminated at little or no cost. If workers are kept on however, the contracts become subject to normal firing costs. We argue in this paper that the effects of such a partial reform of employment protection may be perverse. The main effect may be high turnover in entry-level jobs, leading in turn to higher, not lower, unemployment ...</Abstract>
<Access xmlns="http://purl.org/coar/access_right"
>
</Access>
</Publication>