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 -- no. 13198.; Working paper series (National Bureau of Economic Research) -- working paper no. 13198.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 36
Subjects: Entrepreneurship -- Econometric models; Business enterprises -- Growth -- Econometric models
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."--abstract.
Notes: "June 2007."

Includes bibliographical references (p. 32).

Also available in PDF from the NBER world wide web site (www.nber.org).