Institutional and environmental implications for innovation and entrepreneurship

Financing constraints and air pollution result in substantial deadweight loss. Both sources of inefficiencies also concern entrepreneurs and innovators who are the cornerstones of economic growth. First, the financing of entrepreneurs or innovators, in particular, is characterized by a high degree of information asymmetry. This means that even socially beneficial business ideas or innovation projects might not receive external funding. Second, air pollution causes a wide range of negative health effects which translate into multiple channels of economic outcomes. Hence, the economic costs of air pollution can be large but have not yet been fully uncovered.

This dissertation contributes to ongoing work on the two sources of inefficiencies in the context of entrepreneurship and innovation. First, I contribute to a broad understanding of factors that mitigate financing constraints. The prior literature suggests various signaling strategies to reduce information asymmetries between entrepreneurs and investors. I complement these findings by examining how the choice in legal form serves as a signal to external investors. Furthermore, I extend the findings on the signaling value of patents to mitigate financing constraints. I shift the focus to patents value as loan collateral and show that firms pledging patents can increase their excess to external finance. Second, I contribute to the knowledge of the economic costs of air pollution by estimating the impact of air pollution on innovation. Although prior literature estimates the impact of air pollution on aggregated economic outcomes, these estimates do not account for the long-term effects of air pollution through its impact on innovation.