Why Entrepreneurs Choose Risky R&D Projects ‒ But Still Not Risky Enough

42 Pages Posted: 24 Nov 2012

See all articles by Erika Färnstrand Damsgaard

Erika Färnstrand Damsgaard

National Institute of Economic Research; Research Institute of Industrial Economics (IFN)

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: September 14, 2012

Abstract

Entrepreneurs face higher commercialization costs than incumbents. We show that this implies that entrepreneurs will choose more risky projects than incumbents, aiming to reduce their high expected marginal commercialization cost. However, entrepreneurs may select too safe projects from a social point of view, since they do not internalize the business stealing effect. We also show that commercialization support induces entrepreneurship but may lead to mediocre entrepreneurship by inducing entrepreneurs to choose less risky projects, whereas R&D support encourages entrepreneurship without affecting the type of entrepreneurship. Using Swedish patent citation data, we find empirical support for predictions of the model.

Keywords: Entrepreneurship, Innovation, Commercialization, Entrepreneurship Policy, Start-Ups

JEL Classification: G24, L1, L2, M13, O3

Suggested Citation

Färnstrand Damsgaard, Erika and Norback, Pehr-Johan and Persson, Lars and Vasconcelos, Helder, Why Entrepreneurs Choose Risky R&D Projects ‒ But Still Not Risky Enough (September 14, 2012). IFN Working Paper No. 926. Available at SSRN: https://ssrn.com/abstract=2179803

Erika Färnstrand Damsgaard

National Institute of Economic Research ( email )

Box 3116
Stockholm, SE-103 62
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

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