Spin-offs and the market for ideas
By: Satyajit Chatterjee, Esteban Rossi-Hansberg
Contributors: Rossi-Hansberg, Esteban; National Bureau of Economic Research
Series: NBER working paper series -- working paper 13198; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13198.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "We propose a theory of firm dynamics in which workers have ideas for new projects that can be sold in a market to existing firms or implemented in new firms: spin-offs.  Workers have private information about the quality of their ideas.  Because of an adverse selection problem, workers can sell their ideas to existing firms only at a price that is not contingent on their information.  We show that the option to spin off in the future is valuable so only workers with very good ideas decide to spin off and set up a new firm.  Since entrepreneurs of existing firms pay a price for the ideas sold in the market that implies zero expected profits for them, firms' project selection is independent of their size, which, under some assumptions, leads to scale-independent growth.  The entry and growth process of firms in this economy leads to an invariant distribution that resembles the one in the US economy"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/31/2007.

Includes bibliographical references.

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