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A bargaining model for PLS entrepreneurial financing: A game theoretic model using agent-based simulation

El Fakir, Adil; Fairchild, Richard; Tkiouat, Mohamed; Taamouti, Abderrahim

A bargaining model for PLS entrepreneurial financing: A game theoretic model using agent-based simulation Thumbnail


Authors

Adil El Fakir

Richard Fairchild

Mohamed Tkiouat



Abstract

This article aims to use a bargaining power model to reduce moral hazard—in the form of entrepreneurial effort shirking—and derive an optimum sharing ratio of a Profit and Loss Sharing (PLS) contract that involves a Venture Capitalist and an Entrepreneur. The model reveals the following interesting findings. First, under complete information—where the Venture Capitalist has a bargaining power ‐ Venture Capitalist offers the entrepreneur a profit sharing ratio that is less than her capital contribution ratio. Second, in an incomplete information setting, the entrepreneur demands a profit sharing ratio higher than her capital contribution ratio when the sum of the marginal cost (from exercising a higher effort) and private benefits (from exercising a low effort) is greater than the marginal return (from exercising a high effort). In addition, the model is used to derive a span of negotiation about the profit sharing ratio. Finally, an agent based simulation (Netlogo) platform is considered to implement the model, which allows a faster numerical calculations of the profit share and helps decide on the validity of the funding contract.

Citation

El Fakir, A., Fairchild, R., Tkiouat, M., & Taamouti, A. (2023). A bargaining model for PLS entrepreneurial financing: A game theoretic model using agent-based simulation. International Journal of Finance and Economics, 28(2), 1228-1241. https://doi.org/10.1002/ijfe.2472

Journal Article Type Article
Acceptance Date Dec 23, 2020
Online Publication Date Jan 24, 2021
Publication Date 2023-04
Deposit Date Apr 1, 2021
Publicly Available Date May 17, 2023
Journal International Journal of Finance and Economics
Print ISSN 1076-9307
Electronic ISSN 1099-1158
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 28
Issue 2
Pages 1228-1241
DOI https://doi.org/10.1002/ijfe.2472
Public URL https://durham-repository.worktribe.com/output/1278095

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Publisher Licence URL
http://creativecommons.org/licenses/by/4.0/

Copyright Statement
© 2021 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.





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