Abstract: Syndication is the most widely spread way of venture capital. Under syndication, often “free rider”, a phenomenon of moral hazard, occurs. By addressing this phenomenon, in order to obtain stably evolutionary strategies under different conditions, an evolutionary game model is developed for this problem. With this model, the evolutionary dynamics between two kinds of venture capital institutions is analyzed. It is found that the “free rider” behavior is caused by the ratio between the profit and cost in the current game. It also shows that management costs and the proportion of investment, the so called equity share, have significant effect on the occurrence of moral hazard. Thus, this problem can be resolved by controlling the parameters and improving the conditions. Based on the results obtained, suggestions are made for solving the problem and managing the development of syndication towards a virtuous circle.

Key words: syndication, evolutionary game, moral hazard, evolutionary stable strategy (ESS)