The Research On Double-side Incentive Problem In Venture Firm Based On Inequity Averse

Venture capital is propitious to the industrialization of new technology, the innovation of enterprise and the amelioration of capiatal market.Venture capital not only invests the financial capital in venture firm, but also supplies the value added services to develop the Venture Firm. The efforts of venture capitalist and venture entrepreneur are both important for the venture. The double-sided asymmetric information may lead to double-sided adverse selection and double-sided moral hazard. Many lectures studying the contract in venture capital separately talk about the double-sided moral hazard: some suggest diversified contract design; some compare the mechanisms in existence; others are experiential research about historical data. In a word, to solve the special principal-agent problem, thinking of the participants, we try to design a kind of effective mechanism, which can inspirit and restrict the agents. In this way, we can furthest reduce the transaction cost to assume the success of venture capital projects.The double-side moral hazard is an important property of venture firm. Inequity aversion is added into the double-sided moral hazard model in this paper. The venture capitalist is supposed to be purely selfish and risk-neutral, the venture entrepreneur is inequity-averse and risk-averse. This article structures a model between the equity structure and the double-side problem in order to design optimal equity structure on the basis of equilibrium between the efforts benefit and the cost. It turns out that when the entrepreneur′s inequity aversion is stronger, the capitalist will give more equity to entrepreneur. Both the entrepreneur′s inequity aversion and his efficiency have impacts on his effort. The visual angle of this paperis is original and can be easily used for reference on study of the contract of venture capital, in despite of its conclusion comes from severe abstract and rigorous assumptions.