Abstract:We investigate the effect of state subsidy on the behavior of entrepreneur and venture capitalist in a double moral hazard and fixed investment model under positive externalities. We infer that investment subsidy and success fee improve the incentives, ease credit rationing, hence boost private financing, which explains the popularity of hybrid venture capital systems. The main disadvantage of these systems is, however, that the entrepreneur is encouraged to minimize his/her own capital investment and to ask f… Show more
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