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R&D profitability: the role of risk and Knightian uncertainty

Author

Listed:
  • Sara Amoroso

    () (JRC - European Commission)

  • Pietro Moncada-Paternò-Castello

    () (JRC - European Commission)

  • Antonio Vezzani

    () (JRC - European Commission)

Abstract

Abstract This paper provides the first empirical attempt of linking firms’ profits and investment in R&D revisiting Knight’s (Risk, uncertainty and profit, Hart, Schaffner & Marx, Boston, 1921) distinction between uncertainty and risk. Along with the risky profit-maximising scenario, identifying a second, off-setting, unpredictable bias that leads to heterogeneous returns to R&D investments is crucial to fully understand the drivers of corporate profits. Consistently with the Knightian theory that relates risk to profitability, we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity, a particular type of uncertainty, on R&D returns.

Suggested Citation

  • Sara Amoroso & Pietro Moncada-Paternò-Castello & Antonio Vezzani, 2017. "R&D profitability: the role of risk and Knightian uncertainty," Small Business Economics, Springer, vol. 48(2), pages 331-343, February.
  • Handle: RePEc:kap:sbusec:v:48:y:2017:i:2:d:10.1007_s11187-016-9776-z
    DOI: 10.1007/s11187-016-9776-z
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    Cited by:

    1. Sara Amoroso & Pietro Moncada-Paternò-Castello & Antonio Vezzani, 2017. "R&D profitability: the role of risk and Knightian uncertainty," Small Business Economics, Springer, vol. 48(2), pages 331-343, February.
    2. Romeo-Victor Ionescu, 2016. "Research, Innovation and Development vs Regional Disparities across the European Union," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(2), pages 161-173, April.
    3. Sara Amoroso, 2015. "Profits, R&D and labour: Breaking the law of diminishing returns to labour," JRC Working Papers on Corporate R&D and Innovation 2015-10, Joint Research Centre (Seville site).
    4. Tubadji, Annie & Nijkamp, Peter & Santarelli, Enrico, 2017. "Shacklean Uncertainty and Cultural Embeddedness as Innovation Constraints in the UK," GLO Discussion Paper Series 111, Global Labor Organization (GLO).
    5. repec:dug:journl:y:2016:i:2:p:161-173 is not listed on IDEAS

    More about this item

    Keywords

    R&D investment; Operating profits; Uncertainty; Ambiguity; Risk premium;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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