Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 926:
Why Entrepreneurs Choose Risky R&D Projects - But Still Not Risky Enough

Erika Färnstrand Damsgaard, Pehr-Johan Norbäck (), Lars Persson () and Helder Vasconcelos

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; Start-ups; Ownership; Breakthrough; Quality; (follow links to similar papers)

JEL-Codes: G24; L10; L20; M13; O30; (follow links to similar papers)

41 pages, September 18, 2012

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