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

36 Pages Posted: 25 Oct 2017

See all articles by Erika Färnstrand Damsgaard

Erika Färnstrand Damsgaard

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

Per Hjertstrand

Research Institute of Industrial Economics (IFN)

Pehr‐Johan Norbäck

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)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

This article examines how entrepreneurs and incumbents differ in their R&D strategies. We show that entrepreneurs have incentives to choose projects with a higher risk and a higher potential in order to reduce expected entry costs. If products are not too differentiated, entrepreneurs will select projects that are too safe from a social point of view, since they do not internalise the business stealing effect on incumbents. Entry support induces entrepreneurs to choose safer projects, whereas R&D support encourages entrepreneurship without affecting the type of entrepreneurship.

Suggested Citation

Färnstrand Damsgaard, Erika and Hjertstrand, Per and Norbäck, Pehr‐Johan and Persson, Lars and Vasconcelos, Helder, Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough (October 2017). The Economic Journal, Vol. 127, Issue 605, pp. F164-F199, 2017. Available at SSRN: https://ssrn.com/abstract=3058412 or http://dx.doi.org/10.1111/ecoj.12470

Erika Färnstrand Damsgaard (Contact Author)

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

Per Hjertstrand

Research Institute of Industrial Economics (IFN) ( email )

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

Pehr‐Johan Norbäck

Research Institute of Industrial Economics (IFN)

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

Lars Persson

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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