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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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 |
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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: | 17 Mar 2021 15:45 |
URI: | https://shura.shu.ac.uk/id/eprint/28002 |
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