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Venture Capital Contracting with Renegotiation

Author

Listed:
  • Arieh Gavious

    (Ben Gurion University)

  • Ramy Elitzur

    (University of Toronto)

Abstract

This paper examines contracting between a venture capitalist and an entrepreneur in a setting with unobservable effort when contracts are renegotiated each period. The contribution of our paper lies in the insights it provides on optimal contracts in this setting. The insights from our model prove to be significantly different in certain respects than those obtained under a multi-period contract without renegotiation or a single period setting. An example is worked out to illustrate the division of payoff between the venture capitalist and the entrepreneur each period.

Suggested Citation

  • Arieh Gavious & Ramy Elitzur, 2009. "Venture Capital Contracting with Renegotiation," Economics Bulletin, AccessEcon, vol. 29(1), pages 67-78.
    • Handle: RePEc:ebl:ecbull:eb-08l00021
    as

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    References listed on IDEAS

    as
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    JEL classification:

    • L0 - Industrial Organization - - General

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