[[{“value”:”That is the theme of a new Substack by Pieter Garicano, here is one excerpt: These answers, according to a recent paper by Olivier Coste and Yann Coatanlem, two French investors, miss the point: the reason more capital doesn’t flow towards high-leverage ideas in Europe is because the price of failure is too high. Coste estimates that,
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That is the theme of a new Substack by Pieter Garicano, here is one excerpt:
These answers, according to a recent paper by Olivier Coste and Yann Coatanlem, two French investors, miss the point: the reason more capital doesn’t flow towards high-leverage ideas in Europe is because the price of failure is too high.
Coste estimates that, for a large enterprise, doing a significant restructuring in the US costs a company roughly two to four months of pay per worker. In France, that cost averages around 24 months of pay. In Germany, 30 months. In total, Coste and Coatanlem estimate restructuring costs are approximately ten times greater in Western Europe than in the United States…
Consider a simple example. Two large companies are considering whether to pursue a high risk innovation. The probability of success is estimated at one in five. Upon success they obtain profits of $100 million, and the investment costs $15 million.
One of the companies is in California, where if the innovation fails the restructuring costs $1 million. The other company is in Germany, where restructuring is 10x more expensive, it costs $10 million (a conservative estimate).
The expected value of this investment in California is a profit of $5 million. In Germany the expected value is a loss of $3 million.
Recommended.
The post Why are no trillion dollar companies being created in Europe? appeared first on Marginal REVOLUTION.
Economics, Law, Uncategorized
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