A multi-period game theoretic model of venture capitalists and entrepreneurs

Ramy Elitzur, Arieh Gavious

Research output: Contribution to journalArticlepeer-review

34 Scopus citations


This study examines the relationship between a venture capitalist and an entrepreneur and follows it from its inception to the exit stage. The model we use is a multi-period game theoretic model with moral hazard where the contract is set in the first period. The contribution of the study lies in the insights it provides on optimal contracts and its characterization of an endogenous exit point. Specifically, the paper shows that the optimal incentive scheme should backload all incentive payments to the entrepreneur as much as possible. Consequently, a straight debt contract would be optimal in venture financing.

Original languageEnglish
Pages (from-to)440-453
Number of pages14
JournalEuropean Journal of Operational Research
Issue number2
StatePublished - 16 Jan 2003


  • Entrepreneurs
  • Finance
  • Game theory
  • Optimal contracts
  • Venture capitalists

ASJC Scopus subject areas

  • General Computer Science
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management


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