Investment and operational decisions for start-up companies: a game theory and Markov decision process approach

This paper analyses the contract between an entrepreneur and an investor, using a non-zero sum game in which the entrepreneur is interested in company survival and the investor in maximizing expected net present value. Theoretical results are given and the model's usefulness is exemplified using simulations. We have observed that both the entrepreneur and the investor are better off under a contract which involves repayments and a share of the start-up company. We also have observed that the entrepreneur will choose riskier actions as the repayments become harder to meet up to a level where the company is no longer able to survive.

Automated summary

This paper analyses the contract dynamics between an entrepreneur and an investor, highlighting that both parties benefit from a contract involving repayments and a share of the start-up company. Additionally, the study observes that the entrepreneur tends to take riskier actions as repayments become more difficult, ultimately leading to the company's inability to survive.