Abstract
The venture capital industry is supply determined. Capital allocation is what makes VC funds work. The focus of this chapter is on the main source of capital to VC funds (institutional investors) and on the question, why do institutional investors allocate capital to VC funds? Pension funds have fiduciary obligations to their beneficiaries. We show in the chapter that allocating a small fraction of the savings of the beneficiaries to “lottery-like” investments that, if successful, will change future consumption in a substantial way is congruent with long-term maximization of the utility of consumption of the savers. Successful, innovative, VC-backed companies increase consumption possibilities both by changing relative prices and by introducing new goods and services.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Austin, D., & MacAulay, M. (2000). Estimating future consumers welfare gains from innovation: The case of digital data storage. Washington, DC: Resources for the Future.
Bodie, Z., Treussard, J., & Willen, P. (2007). The theory of life-cycle saving and investing. Boston: Federal Reserve Bank of Boston.
Crandall, R. W., Jackson, C. L., & Singer, H. J. (2003). The effects of ubiquitous broadband adoption on investment, jobs, and the U.S. economy. Washington, DC: Criterion Economics.
David, P. A. (1990, May). The dynamo and the computer: An historical perspective on the modern productivity paradox. AEA Papers and Proceedings.
Doms, M., & Lewis, E. (2006). Labor supply and personal computer adoption. San Francisco: Federal Reserve Bank of Philadelphia Working Paper No. 06-10.
Friedman, M., & Savage, L. J. (1948). The utility analysis of choices involving risk. Journal of Political Economy, LVI(4), 279–304.
Gans, J. S., Hsu, D. H., & Stern, S. (2002). When does start-up innovation spur the gale of creative destruction? RAND Journal of Economics, 33(4), 571–586.
Gans, J., & Stern, S. (2010). Is there a market for ideas. Industrial and Corporate Change, 19(3), 805–837.
Hart, O. (2001). Financial contracting. Journal of Economic Literature, 39(4), 1079–1100.
Hulten, C. R. (2000). Total factor productivity: A short biography (Working Paper No. 7471). National Bureau of Economic Research.
Jones, C. (2005). Growth and ideas. In P. Aghion & S. N. Durlauf (Eds.), Handbook of economic growth (Vol. B, pp. 1065–1111). Amsterdam: Elsevier.
Lamoreaux, N. L., Levenstein, M., & Sokoloff, K. L. (2006). Finance innovation during the second industrial revolution: Cleveland, Ohio 1870–1890. Capitalism and Society, 1(3), Article 5.
Lieberman, M. B. & Balasubramanian, N. (2007). Measuring value creation and its distribution among stakeholders of the firm (Mimeo). Los Angeles, CA: Anderson School of Management, UCLA.
Lundvall, B.-Å. (2009). Innovation as an interactive process: From user-producer interaction to the national system of innovation. African Journal of Science, Technology, Innovation and Development, 1(2–3).
McKinsey Global Institute. (2015). Unlocking the potential of internet of things. McKinsey & Company.
Papanyan, S., & Fraser, K. (2014, March 20). Should low inflation be a concern? A comprehensive explanation for the current lack of inflationary pressures. U.S. Economic Watch.
Rogers, E. R. (1983). Diffusion of innovations. London: The Free Press, Collier Macmillan Publishers.
Saunders, J. D., McClure C. R., & Mandel, L. H. (2012). Broadband applications: Categories, requirements, and future frameworks. First Monday, 17(5).
Schweizer, T. S. (2006). The psychology of novelty-seeking, creativity and innovation: Neurocognitive aspects within a work-psychological perspective. Creativity and Innovation Management, 15(2), 164–172.
Thierer, A.D. (2000) How free Computers are Filling the Digital Divide. Retrived from: http://www.heritage.org/research/reports/2000/04/how-free-computers-are-filling-the-digital-divide
Author information
Authors and Affiliations
Copyright information
© 2016 The Editor(s) (if applicable) and The Author(s)
About this chapter
Cite this chapter
Agmon, T., Sjögre, S. (2016). The Allocation of Savings to VC Funds, Consumers’ Surplus and Life-Cycle Savings Model. In: Venture Capital and the Inventive Process. Palgrave Pivot, London. https://doi.org/10.1057/978-1-137-53660-0_7
Download citation
DOI: https://doi.org/10.1057/978-1-137-53660-0_7
Published:
Publisher Name: Palgrave Pivot, London
Print ISBN: 978-1-137-53659-4
Online ISBN: 978-1-137-53660-0
eBook Packages: Economics and FinanceEconomics and Finance (R0)