The paper shows that uninformed finance gives rise to excessive entry, both in human-capital-intensive and in conventional industries when the financial institutions cannot identify the entrepreneurial talent. Introduction of informed capital (eg venture capital finance) with superior screening...

Consider a principal who appoints an agent. Let the agent potentially serve for a sufficiently long time that one principal is replaced by another over this period. Suppose also that the quality of the agent appointed increases with the effort the incumbent principal devotes to hiring. Then the...

A venture capitalist faces a trade-off between the extent of managerial advice allocated to each start-up and the total number of firms advised. Diminishing returns to advice per firm call for a larger portfolio. As advice gets diluted, further expansion of the portfolio eventually becomes...

This paper shows that labor market institutions are important for the formation of new enterprises. The effects of labor market institutions on entrepreneurship, wage determination, and firm size are analysed analytically and illustrated numerically. The main result is that an increase in union...

We analyze the tax effects on a potential firm with an irreversible entry option and subject to risky post-entry earnings. We formulate the problem in terms of optimal stopping and derive both the necessary conditions for optimal entry and the value of the optimal premium by relying on the...

The paper shows how entrepreneurial taxes interact with the career choice of individuals, the quality of entrepreneurs, and their effort and investments. It is particularly relevant to differentiate the early effects on start-up enterprises with substantial uncertainty from the tax effects on...

We consider taxation by a utilitarian government in the presence of heterogeneous locations within a country. We show that a utilitarian government never equalizes after-tax incomes, even when it can impose group-specific lump-sum taxes. If migration is impossible, a utilitarian government may...

Start-up entrepreneurs are often commercially inexperienced. In giving managerial advice, venture capitalists can importantly enhance the success of innovative but highly risky ventures. The supply of experienced venture capitalists is not easily increased, however. When the rate of business...

The current paper reconsiders the theory of corporate investment under price uncertainty. The assumption that management is a perfect, risk-neutral agent of corporate owners has been relaxed. It is found that the management's limited opportunity to diversify and limited ability to finance...