Why Entrepreneurs Choose Risky R&D Projects ‒ But Still Not Risky Enough
42 Pages Posted: 24 Nov 2012
Date Written: September 14, 2012
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, Commercialization, Entrepreneurship Policy, Start-Ups
JEL Classification: G24, L1, L2, M13, O3
Suggested Citation: Suggested Citation