The role of renegotiation on incentives and welfare in venture capital
by Ma Xiaoyan
THESIS
2002
M.Phil. Economics
6, 29 leaves : ill. ; 30 cm
Abstract
The replacement of the founder CEO (Entrepreneur) by a professional manager is becoming more and more popular in venture capital industry. This paper examines this replacement problem in an environment where it can only happen with ex post renegotiation after the revelation of the entrepreneur's ability. By analyzing two situations----- the situation under which renegotiation is allowed and the situation under which it is not allowed, we show that this possibility of renegotiation on the replacement problem can induce more incentives and improve social welfare.
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