Jonathan Arnold, PhD Candidate in Economics, University of Pennsylvania
Abstract: Venture capital (VC) firms have increasingly applied a common ownership strategy for startup investments in recent years. VCs invest in multiple startups working on similar projects, wait for a leader to emerge, and then defund or divert the remaining startups. This project aims to estimate the welfare effects of this strategy in the biotechnology industry, using a structural model of the investment decisions of VCs during the drug development process and the product market for the successful drugs. This will allow measurement of the two countervailing effects of this strategy: increased innovation efficiency through reduced R&D duplication, and reduced product market competition. Counterfactuals will simulate the effects of various policy instruments for restricting or increasing common ownership.