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SUMMARY:The Excessive Creation of Sequel Firms - Pierre Mella-Barral\, Pro
 fessor - Speciality: Finance\, EDHEC Business School
DTSTART:20150205T130000Z
DTEND:20150205T140000Z
UID:TALK53778@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:When an inventing firm does not exploit itself\, but sells an 
 innovation\, it internalizes the value of exploiting this innovation in a 
 newly created firm. Such a sequel firm has however the ability to contract
  separately. As the research production of a firm suffers from a moral haz
 ard in team problem\, it is then worthwhile for the sequel firm to build i
 ts' own research team\, in order to compete for further innovations. So se
 lling an innovation\, the innovating firm also looses some likelihood of  
 making future innovations. This imposes a negative externality on the inno
 vating firm. We construct a model which captures this trade-off and the re
 sulting dynamics of sequel firm creation. We compare the equilibrium frequ
 ency of firm creation with the first-best. There is predominantly ``excess
 ive" creation of firms\, particularly in young industries. Inefficiencies 
 fade away as the industry develops. This helps explaining the empirical ob
 servation that the frequency of sequel firm creation\, as well as the focu
 s of firms\, decrease with the age of the industry.
LOCATION:10 Trumpington Street
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