The Return to Independent Invention: Evidence of Risk Seeking, Extreme Optimism or Skewness-Loving

Thomas Astebro

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Abstract: Examining a sample of 1,091 inventions I investigate the magnitude and distribution of the pretax internal rate of return (IRR) to inventive activity. The average IRR on a portfolio investment in these inventions is 11.4%. This is higher than the risk-free rate but lower than the long-run return on high-risk securities and the long-run return on early-stage venture capital funds. The portfolio IRR is significantly higher, for some ex ante identifiable classes of inventions. The distribution of return is skew: only between 7-9% reach the market. Of the 75 inventions that did, six realised returns above 1400%, 60% obtained negative returns and the median was negative.

Keywords: invention; IRR; inventive activity (search for similar items in EconPapers)
Date: 2003-01
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Citations: View citations in EconPapers (42)

Published in The Economic Journal, 2003, 484 (113), pp.226-239. ⟨10.1111/1468-0297.00089⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00480030

DOI: 10.1111/1468-0297.00089

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