About this event
We develop a model of learning through experimentation in a principal-agent framework, where investors only observe an experiment’s outcome, but entrepreneurs can impact the information contained in the outcome through the experiment's design. Investors prefer 'killer experiments' that are more likely to correctly identify true successes and failures, but entrepreneurs prefer to design experiments that are less likely to fail. We show that the moral hazard that ensues can create a market failure in financing the resulting venture, which cannot be resolved through higher-powered incentives for the entrepreneur through standard 'pay for performance' contracts. Our results speak to an important potential friction in the commercialization of innovations, particularly ones in areas such 'Deep Tech' ventures based on fundamental science, that lack well-understood benchmarks needed for investors to effectively validate the information contained in early de-risking experiments.
Participants are expected to adhere to the Events Code of Conduct.
This event will take place in SAL 2.04, 2nd Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.
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SAL
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