Investments on a Rugged Landscape: The Effect of Investor Population, Network Structure, and Complexity on Technological Change

An Agent-Based Simulation

Daniel Hain, Elena Mas Tur

Publikation: Konferencebidrag uden forlag/tidsskriftPaper uden forlag/tidsskriftForskningpeer review

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Resumé

In this paper, we investigate which characteristics of technological and financial systems might be conductive for technological change. We are particularly in how the interplay between capabilities, resources and networks among investors with the complexity and maturity of technologies affect the rate and direction of investments in potential innovation projects. To do so, we present an agent-based simulation model of technology investment by heterogeneous financial agents connected in a co-investment network. We model these agents as to observe emerging technologies on a technology “fitness landscape”, and select potential investment targets according to their perceived risk-adjusted returns, where risks are a function of the technology’s maturity and the returns of
the achieved technology fitness. Subject to imperfect information and bounded rationality, financial agents are heterogeneous in their (i.) their position and “search radius” on the landscape, determining the potential investment targets they are able to spot, and (ii.) “forecasting ability”, determining the accuracy of their prediction of achievable technological fitness. We observe which population of financial agents lead to high rates of technological change and diversity, and prevents technologies from getting stuck in the financial “valley of death”. In a next step, we introduce investor networks and allow agents to co-invest together in order to pool financial resources and get access to their
forecasting capability in a specific technological domain. We compare which investor network structures lead to the high rates of technological change and diversity on a given technology landscape. Results from a Monte Carlo simulation indicate networked investor population to outperform the
case of isolated stand-alone investors, in terms of investor benefits as well as achieved technological change. Yet, we also find evidence for the existence of a financial “valley of death” - a certain stage in the technology life-cycle where its characteristics discourage further investments, thereby making the technology likely to “die” due to underinvestment. While encouraging investments in early
stages, the effect of co-investment networks does not prevent this phenomenon to occur.
OriginalsprogEngelsk
Publikationsdato2016
StatusUdgivet - 2016
BegivenhedInternational Schumpeter Society Conference - Hotel Bonaventure, Montreal , Canada
Varighed: 6 jul. 20168 jul. 2016
Konferencens nummer: 16
http://schumpeter-conference-montreal.ca/

Konference

KonferenceInternational Schumpeter Society Conference
Nummer16
LokationHotel Bonaventure
LandCanada
ByMontreal
Periode06/07/201608/07/2016
Internetadresse

Fingerprint

Investors
Agent-based simulation
Network structure
Technological change
Technological diversity
Fitness
Maturity
Prediction
Resources and capabilities
Financial system
Technology life cycle
Risk-adjusted returns
Underinvestment
Monte Carlo simulation
Financial resources
Fitness landscape
Bounded rationality
Perceived risk
Innovation
Technology investment

Citer dette

Hain, D., & Mas Tur, E. (2016). Investments on a Rugged Landscape: The Effect of Investor Population, Network Structure, and Complexity on Technological Change: An Agent-Based Simulation. Afhandling præsenteret på International Schumpeter Society Conference, Montreal , Canada.
Hain, Daniel ; Mas Tur, Elena. / Investments on a Rugged Landscape: The Effect of Investor Population, Network Structure, and Complexity on Technological Change : An Agent-Based Simulation. Afhandling præsenteret på International Schumpeter Society Conference, Montreal , Canada.
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Investments on a Rugged Landscape: The Effect of Investor Population, Network Structure, and Complexity on Technological Change : An Agent-Based Simulation. / Hain, Daniel; Mas Tur, Elena.

2016. Afhandling præsenteret på International Schumpeter Society Conference, Montreal , Canada.

Publikation: Konferencebidrag uden forlag/tidsskriftPaper uden forlag/tidsskriftForskningpeer review

TY - CONF

T1 - Investments on a Rugged Landscape: The Effect of Investor Population, Network Structure, and Complexity on Technological Change

T2 - An Agent-Based Simulation

AU - Hain, Daniel

AU - Mas Tur, Elena

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Y1 - 2016

N2 - In this paper, we investigate which characteristics of technological and financial systems might be conductive for technological change. We are particularly in how the interplay between capabilities, resources and networks among investors with the complexity and maturity of technologies affect the rate and direction of investments in potential innovation projects. To do so, we present an agent-based simulation model of technology investment by heterogeneous financial agents connected in a co-investment network. We model these agents as to observe emerging technologies on a technology “fitness landscape”, and select potential investment targets according to their perceived risk-adjusted returns, where risks are a function of the technology’s maturity and the returns ofthe achieved technology fitness. Subject to imperfect information and bounded rationality, financial agents are heterogeneous in their (i.) their position and “search radius” on the landscape, determining the potential investment targets they are able to spot, and (ii.) “forecasting ability”, determining the accuracy of their prediction of achievable technological fitness. We observe which population of financial agents lead to high rates of technological change and diversity, and prevents technologies from getting stuck in the financial “valley of death”. In a next step, we introduce investor networks and allow agents to co-invest together in order to pool financial resources and get access to theirforecasting capability in a specific technological domain. We compare which investor network structures lead to the high rates of technological change and diversity on a given technology landscape. Results from a Monte Carlo simulation indicate networked investor population to outperform thecase of isolated stand-alone investors, in terms of investor benefits as well as achieved technological change. Yet, we also find evidence for the existence of a financial “valley of death” - a certain stage in the technology life-cycle where its characteristics discourage further investments, thereby making the technology likely to “die” due to underinvestment. While encouraging investments in earlystages, the effect of co-investment networks does not prevent this phenomenon to occur.

AB - In this paper, we investigate which characteristics of technological and financial systems might be conductive for technological change. We are particularly in how the interplay between capabilities, resources and networks among investors with the complexity and maturity of technologies affect the rate and direction of investments in potential innovation projects. To do so, we present an agent-based simulation model of technology investment by heterogeneous financial agents connected in a co-investment network. We model these agents as to observe emerging technologies on a technology “fitness landscape”, and select potential investment targets according to their perceived risk-adjusted returns, where risks are a function of the technology’s maturity and the returns ofthe achieved technology fitness. Subject to imperfect information and bounded rationality, financial agents are heterogeneous in their (i.) their position and “search radius” on the landscape, determining the potential investment targets they are able to spot, and (ii.) “forecasting ability”, determining the accuracy of their prediction of achievable technological fitness. We observe which population of financial agents lead to high rates of technological change and diversity, and prevents technologies from getting stuck in the financial “valley of death”. In a next step, we introduce investor networks and allow agents to co-invest together in order to pool financial resources and get access to theirforecasting capability in a specific technological domain. We compare which investor network structures lead to the high rates of technological change and diversity on a given technology landscape. Results from a Monte Carlo simulation indicate networked investor population to outperform thecase of isolated stand-alone investors, in terms of investor benefits as well as achieved technological change. Yet, we also find evidence for the existence of a financial “valley of death” - a certain stage in the technology life-cycle where its characteristics discourage further investments, thereby making the technology likely to “die” due to underinvestment. While encouraging investments in earlystages, the effect of co-investment networks does not prevent this phenomenon to occur.

KW - finance of innovation

KW - asymmetric information

KW - investor networks

KW - syndication

KW - agent-based simulation

M3 - Paper without publisher/journal

ER -

Hain D, Mas Tur E. Investments on a Rugged Landscape: The Effect of Investor Population, Network Structure, and Complexity on Technological Change: An Agent-Based Simulation. 2016. Afhandling præsenteret på International Schumpeter Society Conference, Montreal , Canada.