Fairness norms and self-interest in venture capital/entrepreneur contracting and performance

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We consider the combined impact of agency problems and behavioural factors on venture capital/entrepreneur contracting and performance. Particularly, we develop a behavioural game-theoretic model in which a venture capitalist and an entrepreneur negotiate over their respective equity shares, and then exert value-adding efforts in running the business. Double-sided moral hazard exists in that both parties may exert sub-optimal effort (the =shirking' problem). We demonstrate that, for a given level of VC-ability, an increase in social fairness norms induces the VC to offer more equity to the entrepreneur, which in turn induces the entrepreneur to exert more effort. This improves venture performance.
Original languageEnglish
Title of host publicationEntrepreneurship
Subtitle of host publicationMotivation, Performance and Risk
PublisherNova Science Publishers
Number of pages18
ISBN (Print)9781614701484
Publication statusPublished - Dec 2011


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