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Subsidy Entrepreneurs: an Inquiry into Firms Seeking Public Grants

Author

Listed:
  • 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)

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.

Suggested Citation

  • Anders Gustafsson & Patrik Gustavsson Tingvall & Daniel Halvarsson, 2020. "Subsidy Entrepreneurs: an Inquiry into Firms Seeking Public Grants," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 439-478, September.
    • Handle: RePEc:kap:jincot:v:20:y:2020:i:3:d:10.1007_s10842-019-00317-0
    DOI: 10.1007/s10842-019-00317-0
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    3. Martin Thomas Falk & Roger Svensson, 0. "Evaluation criteria versus firm characteristics as determinants of public R&D funding," Science and Public Policy, Oxford University Press, vol. 47(4), pages 525-535.
    4. Henrekson, Magnus & Lakomaa, Erik & Sanandaji, Tino, 2021. "The Interaction of Schumpeterian Institutional Entrepreneurship and Hayekian Institutional Change in Innovative Industries," Working Paper Series 1409, Research Institute of Industrial Economics.
    5. Sandström, Christian & Alm, Carl, 2023. "Why Green deals may fail – evidence from biogas, bio-ethanol and “fossil free” steel," Ratio Working Papers 365, The Ratio Institute.
    6. Björnemalm, Rickard & Sandström, Christian & Åkesson, Nelly, 2023. "A Public Choice Perspective on Mission-Oriented Innovation Policies and the Behavior of Government Agencies," Ratio Working Papers 366, The Ratio Institute.
    7. Magnus Henrekson & Christian Sandström & Mikael Stenkula, 2024. "Learning from Overrated Mission-Oriented Innovation Policies: Seven Takeaways," International Studies in Entrepreneurship, in: Magnus Henrekson & Christian Sandström & Mikael Stenkula (ed.), Moonshots and the New Industrial Policy, pages 235-255, Springer.
    8. Ferraro, Simona & Männasoo, Kadri & Tasane, Helery, 2023. "How the EU Cohesion Policy targeted at R&D and innovation impacts the productivity, employment and exports of SMEs in Estonia," Evaluation and Program Planning, Elsevier, vol. 97(C).
    9. Niklas Elert & Magnus Henrekson, 2022. "Collaborative Innovation Blocs and Mission-Oriented Innovation Policy: An Ecosystem Perspective," International Studies in Entrepreneurship, in: Karl Wennberg & Christian Sandström (ed.), Questioning the Entrepreneurial State, pages 345-367, Springer.
    10. Magnus Henrekson & Christian Sandström & Mikael Stenkula, 2024. "Moonshots and the New Industrial Policy: Questioning the Mission Economy," International Studies in Entrepreneurship, in: Magnus Henrekson & Christian Sandström & Mikael Stenkula (ed.), Moonshots and the New Industrial Policy, pages 3-28, Springer.
    11. Špetlík Václav & Čadil Jan, 2023. "When Daces Bite Deeper than Sharks – Does the SMEs Public Subsidy Dose Matter?," Review of Economic Perspectives, Sciendo, vol. 23(4), pages 233-250, December.
    12. Edeh, Jude N. & Acedo, Francisco J., 2021. "External supports, innovation efforts and productivity: Estimation of a CDM model for small firms in developing countries," Technological Forecasting and Social Change, Elsevier, vol. 173(C).

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    More about this item

    Keywords

    Firm subsidies; Industrial policy; Innovation policy; Entrepreneurship;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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