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Why Entrepreneurs Choose Risky R&D Projects - but still not risky enough

Author

Listed:
  • Erika Färnstrand Damsgaard
  • Per Hjertstrand
  • Pehr-Johan Norbäck
  • Lars Persson
  • Helder Vasconcelos

Abstract

This paper examines how entrepreneurs and incumbents differ in R&D strategies. We show that entrepreneurs have incentives to choose projects with higher risk and a higher potential in order to reduce expected commercialization costs. However, entrepreneurs may still select too safe projects from a social point of view, since they do not internalize the business stealing effect. 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. We develop a regression framework to test empirical predictions of the model. Within our regression framework we derive and attach statistical decision hypotheses corresponding to each prediction. Using a unique data set of Swedish patents and innovators, we find strong empirical support for these predictions.

Suggested Citation

  • Erika Färnstrand Damsgaard & Per Hjertstrand & Pehr-Johan Norbäck & Lars Persson & Helder Vasconcelos, 2016. "Why Entrepreneurs Choose Risky R&D Projects - but still not risky enough," CESifo Working Paper Series 6138, CESifo.
  • Handle: RePEc:ces:ceswps:_6138
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    References listed on IDEAS

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    Cited by:

    1. Heyman, Fredrik & Norbäck, Pehr-Johan & Persson, Lars & Andersson, Fredrik, 2019. "Has the Swedish business sector become more entrepreneurial than the US business sector?," Research Policy, Elsevier, vol. 48(7), pages 1809-1822.
    2. Montserrat Manzaneque & Alfonso A. Rojo-Ramírez & Julio Diéguez-Soto & Maria J. Martínez-Romero, 2020. "How negative aspiration performance gaps affect innovation efficiency," Small Business Economics, Springer, vol. 54(1), pages 209-233, January.
    3. Kärnä, Anders & Karlsson, Johan & Engberg, Erik & Svensson, Peter, 2020. "Political Failure: A Missing Piece in Innovation Policy Analysis," Working Paper Series 1334, Research Institute of Industrial Economics, revised 21 Apr 2022.
    4. Andersson, Fredrik W. & Jordahl, Henrik & Kärnä, Anders, 2021. "Ballooning Bureaucracy: Tracking the Growth of High-Skilled Administration within Swedish Higher Education," Working Paper Series 1399, Research Institute of Industrial Economics.

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    More about this item

    Keywords

    entrepreneurship; R&D; entry deterrence;
    All these keywords.

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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