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Subsidy Entrepreneurs: an Inquiry into Firms Seeking Public Grants

Anders Gustafsson (), Patrik Gustavsson Tingvall () and Daniel Halvarsson
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Anders Gustafsson: Örebro University & the Research Institute of Industrial Economics (IFN)
Patrik Gustavsson Tingvall: Stockholm School of Economics & National Board of Trade Sweden
Daniel Halvarsson: The Ratio Institute

Authors registered in the RePEc Author Service: Anders Kärnä

Journal of Industry, Competition and Trade, 2020, vol. 20, issue 3, No 1, 439-478

Abstract: Abstract This paper studies the incentives and characteristics of firms that apply for, and eventually receive, one or multiple governmental grants intended to stimulate innovation and growth. The analysis departs from a contest model in which entrepreneurs are free to allocate their effort between production and seeking grants. The results suggest that highly productive entrepreneurs abstain from seeking grants, moderately productive firms allocate a share of their effort to grant seeking, and low-productivity firms allocate most resources to seeking grants. Due to their efforts in seeking grants, these low-productive subsidy entrepreneurs also have a relatively high probability of receiving the grants. Using comprehensive data over grants from the three largest grant-distributing agencies in Sweden, we find concordant evidence of a negative relation between the probability of receiving a grant and firm productivity. As we go from single- to multiple-grant-supported firms, this negative relation becomes more pronounced.

Keywords: Firm subsidies; Industrial policy; Innovation policy; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: H25 O38 P16 D72 L52 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10842-019-00317-0

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