A bargaining model for PLS entrepreneurial financing: A game theoretic model using agent-based simulation.

EL FAKIR, Adil, FAIRCHILD, Richard, TKIOUAT, Mohamed and TAAMOUTI, Abderrahim (2021). A bargaining model for PLS entrepreneurial financing: A game theoretic model using agent-based simulation. International Journal of Finance and Economics.

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Official URL: https://onlinelibrary.wiley.com/doi/full/10.1002/i...
Open Access URL: https://onlinelibrary.wiley.com/doi/epdf/10.1002/i... (Published version)
Link to published version:: https://doi.org/10.1002/ijfe.2472
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    Abstract

    This article aims to use a bargaining power model to reduce moral hazard—in the form of entrepreneurial effort shirking—and derive an optimum sharing ratio of a Profit and Loss Sharing (PLS) contract that involves a Venture Capitalist and an Entrepreneur. The model reveals the following interesting findings. First, under complete information—where the Venture Capitalist has a bargaining power ‐ Venture Capitalist offers the entrepreneur a profit sharing ratio that is less than her capital contribution ratio. Second, in an incomplete information setting, the entrepreneur demands a profit sharing ratio higher than her capital contribution ratio when the sum of the marginal cost (from exercising a higher effort) and private benefits (from exercising a low effort) is greater than the marginal return (from exercising a high effort). In addition, the model is used to derive a span of negotiation about the profit sharing ratio. Finally, an agent based simulation (Netlogo) platform is considered to implement the model, which allows a faster numerical calculations of the profit share and helps decide on the validity of the funding contract.

    Item Type: Article
    Uncontrolled Keywords: Economics; 1502 Banking, Finance and Investment
    Identification Number: https://doi.org/10.1002/ijfe.2472
    SWORD Depositor: Symplectic Elements
    Depositing User: Symplectic Elements
    Date Deposited: 22 Jan 2021 12:30
    Last Modified: 02 Feb 2021 12:00
    URI: http://shura.shu.ac.uk/id/eprint/28002

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