How to Motivate Fundamental Innovation: Optimal Interactions Between Entrepreneurs, Venture Capitalists, and the Government

• 成果类型: Article; Early Access
• 署名作者: Bayar, Onur; Chemmanur, Thomas J.; Liu, Mark H.
• 署名单位: University of Texas System; University of Texas at San Antonio; Boston College; University of Kentucky
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2024.06188
• 发表日期: 2025
• 关键词: financing of innovations; fundamental innovation; venture capital financing; innovation and the going public decision; government subsidies; innovation prizes

摘要

We analyze the roles of entrepreneurs, venture capitalists (VCs), and the government in financing fundamental innovations, defined as those with a positive social value net of development costs but often with negative net present values to innovating firms, for example, a vaccine against COVID-19. We first analyze the case where the entrepreneur, with or without VC financing, develops innovations. We then analyze government support of innovation and the government's choice between subsidies and innovation prizes. We further analyze the optimal interactions between government and VC financing, showing that the government may optimally channel subsidies partially through VCs, thus rationalizing government-funded VCs. Overall, our paper provides a framework for the optimal choice of sectors and technologies to receive government support (e.g., subsidies included in the CHIPS and Science Act of 2022) and how any government support should be structured to best motivate innovation.