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

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Author Info

  • Färnstrand Damsgaard, Erika

    (National Institute of Economic Research)

  • Norbäck, Pehr-Johan

    ()
    (Research Institute of Industrial Economics (IFN))

  • Persson, Lars

    ()
    (Research Institute of Industrial Economics (IFN))

  • Vasconcelos, Helder

    (Faculdade de Economia, Universidade do Porto)

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.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 926.

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Length: 41 pages
Date of creation: 18 Sep 2012
Date of revision:
Handle: RePEc:hhs:iuiwop:0926

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Keywords: Entrepreneurship; Innovation; Start-ups; Ownership; Breakthrough; Quality;

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  1. Maksimovic, Vojislav & Zechner, Josef, 1991. " Debt, Agency Costs, and Industry Equilibrium," Journal of Finance, American Finance Association, vol. 46(5), pages 1619-43, December.
  2. Svensson, Roger, 2007. "Commercialization of patents and external financing during the R&D phase," Research Policy, Elsevier, vol. 36(7), pages 1052-1069, September.
  3. Jean O. Lanjouw & Mark Schankerman, 1999. "The Quality of Ideas: Measuring Innovation with Multiple Indicators," NBER Working Papers 7345, National Bureau of Economic Research, Inc.
  4. Claude Crampes & Corinne Langinier, 2002. "Litigation and Settlement in Patent Infringement Cases," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 258-274, Summer.
  5. Crampes, C. & Langinier, C., 2000. "Ligation and Settlement in Patent Infringement Case," Papers 00-537, Toulouse - GREMAQ.
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