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Economic Journal

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

Scientific Article in English
Reference
Färnstrand Damsgaard, Erika, Per Hjertstrand, Pehr‐Johan Norbäck, Lars Persson and Helder Vasconcelos (2017). “Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough”. Economic Journal 127(605), F164–F199. doi.org/10.1111/ecoj.12470

Authors
Erika Färnstrand Damsgaard, Per Hjertstrand, Pehr‐Johan Norbäck, Lars Persson, Helder Vasconcelos

This paper examines how entrepreneurs and incumbents di¤er in their R&D strategies. We show that entrepreneurs have incentives to choose projects with a higher risk and a higher potential in order to reduce expected entry costs. If products are not too di¤erentiated, entrepreneurs will select projects that are too safe from a social point of view, since they do not internalize the business stealing e¤ect on incumbents. Entry support induces entrepreneurs to choose safer projects, whereas R&D support encourages entrepreneurship without a¤ecting the type of entrepreneurship.