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Akerlof, Robert J. and Holden, Richard (2016) Movers and shakers. The Quarterly Journal of Economics, 131 (4). pp. 1849-1874. doi:10.1093/qje/qjw021 ISSN 0033-5533.
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Official URL: http://dx.doi.org/10.1093/qje/qjw021
Abstract
Most projects, in most walks of life, require the participation of multiple parties. While it is difficult to unite individuals in a common endeavor, some people, who we call “movers and shakers,” seem able to do it. The paper specifically examines moving and shaking of an investment project, whose return depends both on its quality and the total capital invested in it. We analyze a model with two types of agents: managers and investors. Managers and investors initially form social connections. Managers then bid to buy control of the project and the winning bidder puts effort into making investors aware of it. Finally, a subset of aware investors are given the chance to invest and they decide whether to do so after receiving private signals of the project’s quality. We first show that connections are valuable since they make it easier for a manager to “move and shake” the project (i.e., obtain capital from investors). When we endogenize the network, we find that, while managers are identical ex ante, a single manager emerges as most connected; he consequently earns a rent. In extensions, we move away from the assumption of ex ante identical managers to highlight forces that lead one manager or another to become a mover and shaker. Our theory sheds light on a range of topics including: entrepreneurship, venture capital, and anchor investments.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Executives, Capitalists and financiers, Entrepreneurship, Venture capital | ||||||||
Journal or Publication Title: | The Quarterly Journal of Economics | ||||||||
Publisher: | Oxford University Press | ||||||||
ISSN: | 0033-5533 | ||||||||
Official Date: | 1 November 2016 | ||||||||
Dates: |
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Volume: | 131 | ||||||||
Number: | 4 | ||||||||
Page Range: | pp. 1849-1874 | ||||||||
DOI: | 10.1093/qje/qjw021 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 12 August 2016 | ||||||||
Date of first compliant Open Access: | 12 July 2018 | ||||||||
Funder: | Australian Research Council (ARC) | ||||||||
Grant number: | Future Fellowship FT130101159 |
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