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Guest Post – Too Talented to Innovate? by Prof. David Zvilichovsky and Prof. Noam Shamir - CIV 2014 Grant Winners

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客座文章:创新,大材小用了?This research integrates entrepreneurial project selection and success into a dynamic multi-period model, which explores financing and execution of heterogeneous projects under asymmetric information. Entrepreneurs endowed with different skill levels decide on the execution of projects while internalizing the reputational effect that their decision may have.

When deciding on the execution of a project, entrepreneurs evaluate the trade-off between the positive expected return from the currently available project, and the impact such an execution may have on the financing of future projects. Reputation can be acquired following a history of successful execution, but may also be inferred from project selection. We show that, under certain conditions, talented entrepreneurs may signal their ability by actually choosing not to execute certain types of projects, even when such projects generate positive expected returns.

The analysis evaluates the complex relationship between the available project portfolio, project execution and welfare. Interestingly the availability of smaller and less complex projects, which on their own contribute little to overall welfare, may actually generate a large welfare impact.  The correct proportion of such projects generates an opportunity for good entrepreneurs to credibly signal that they have superior skills. Surprisingly this signaling may also occur when talented entrepreneurs decide to forgo the execution of lower NPV projects, while less talented entrepreneurs will not find it profitable to imitate the action of such talented entrepreneurs. This separation improves the allocation of venture capital and overall increases welfare.

Government policies often allocate funds to encourage the creation of high-risk/high-gain opportunities, which also require a significant degree of skill to execute. The results of this research show that the benefits of supporting lower-risk/lower-gain projects extend beyond their direct contribution. By facilitating a correct proportion of project type the allocation of capital to high-risk/high gain projects can be improved, supporting better success rates and higher overall welfare.

The research was funded by a grant awarded in 2014 by the Coller Institute of Venture.

1434879199_zvilichovkyDavid Zvilichovsky received his Ph.D. in Economics as well as an MSc. in Computer Science from the Tel Aviv University. His current research interests include: Networks & Platforms, Innovation & Growth, CrowdFunding, Entrepreneurship, Bubbles, and the Internet Economy. Dr. Zvilichovsky has been involved with the Israeli High Tech industry for over 20 years working with industry leaders such as Comverse, Scitex and Electric Fuel. He co-founded IPHighway, a pioneer in the Network QOS space and was an executive at the Robo-Group during its IPO on both the Nasdaq and Tel Aviv Stock exchanges.

Over the years David has served as a board member and advisor in the areas of Venture Capital, Technology Innovation and Early Stage Ventures. Zvilichovsky also served as a special economic advisor to the national economic council at the Israeli prime minister’s office during the 2008 market crisis. Dr. Zvilichovsky teaches courses in economics, entrepreneurship, and innovation.

noam-shamirNoam Shamir is an Assistant Professor at Tel-Aviv University Coller School of Management. Prior to joining Tel-Aviv University, he was a visiting Faculty at Kellogg School of Management. Noam Shamir received his Bachelor’s and Master’s degrees in computer Science and Decision Sciences from Tel-Aviv University, and his PhD from Stanford University Graduate School of Business.

His research focuses on issues in supply-chain management with a particular concentration on the effect of information and uncertainty on the behavior of firms in a supply-chain. Before his academic career he spent 6 years at the Israeli Defense Forces as an Officer in the Intelligence corps, and three years at Israel’s Prime Minister’s office as a product manager. He was also a product manager at Comverse, a leading global provider of telecom business solutions.

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