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

Erika Färnstrand Damsgaard, Pehr-Johan Norbäck (), Lars Persson and Helder Vasconcelos ()
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Erika Färnstrand Damsgaard: National Institute of Economic Research

No 926, Working Paper Series from Research Institute of Industrial Economics

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 (search for similar items in EconPapers)
JEL-codes: G24 L10 L20 M13 O30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-ino, nep-ipr, nep-pr~, nep-ppm, nep-sbm and nep-tid
Date: 2012-09-18
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Journal Article: Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough (2017) Downloads
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