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Cambridge Finance Workshop - Pierre Mella-Barral

Cambridge Finance Workshop Series are usually held on Thursdays during term time. The workshops are an opportunity for those working in finance to present their latest results or papers.
When Feb 05, 2015
from 01:00 PM to 02:00 PM
Where 10 Trumpington Street (lower ground floor)
Contact Name
Contact Phone 01223768129
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Pierre Mella-Barral is a Professor of Finance at EDHEC Business School. 

Pierre mella-Barral

The title of the talk is:

"The Excessive Creation of Sequel Firms"

When an inventing firm does not exploit itself, but sells an innovation, it internalizes the value of exploiting this innovation in a newly created firm. Such a sequel firm has however the ability to contract separately. As the research production of a firm suffers from a moral hazard in team problem, it is then worthwhile for the sequel firm to build its' own research team, in order to compete for further innovations. So selling an innovation, the innovating firm also looses some likelihood of  making future innovations. This imposes a negative externality on the innovating firm. We construct a model which captures this trade-off and the resulting dynamics of sequel firm creation. We compare the equilibrium frequency of firm creation with the first-best. There is predominantly "excessive" creation of firms, particularly in young industries. Inefficiencies fade away as the industry develops. This helps explaining the empirical observation that the frequency of sequel firm creation, as well as the focus of firms, decrease with the age of the industry.

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