Entrepreneurs and new ideas


The RAND Journal of Economics

Winter 2008, vol. 39, n°4, pp.1105-1125

Departments: Finance

RAND Journal of EconomicsVol. 39, No. 4, Winter 2008pp. 1105–1125Entrepreneurs and new ideasBruno Biais∗andEnrico Perotti∗∗We study how early-stage new ideas are turned into successful businesses. Even promising ideascan be unprofitable if they fail on one dimension, such as technical feasibility, correspondenceto market demand, legality, or patentability. To screen good ideas, the entrepreneur needs to hireexperts who evaluate the idea along their dimensions of expertise. Sharing the idea, however,creates the risk that the expert would steal it. Yet, the idea-thief cannot contact any otherexpert, lest he should in turn steal the idea. Thus, stealing leads to incomplete screening and isunattractive if the information of the other expert is critical and highly complementary. In suchcases, the entrepreneur can form a partnership with the experts, thus granting them the advantageof accessing each other’s information. Yet, very valuable ideas cannot be shared because it is tootempting to steal them