Picture: The participants in this year's conference.
The program focuses on highlighting the economic fundamentals – such as forms of corporate ownership, tax systems, and general institutions – that can help create entrepreneurship with both adaptability and resilience and that drives sustainable growth. This year's IFN conference focused on regulations, industrial policy, and competition policy in the AI-based green transformation of the business sector.
Session I
Contract Renegotiations in Public Private Partnerships: Balancing Commitment and Flexibility Presenter: Emmanuelle Auriol, Toulouse School of Economics
Emanuelle Auriol and Stéphane Saussier study Public Private Partnerships (PPPs) and whether renegotiations of their contracts are positive or negative for welfare. Constructing a theoretical model comparing standard public ownership structures and PPPs, specifically Build-Operate-Transfer concession PPPs, they introduce exogenous risk. They conclude that given exogenous risk, renegotiations lower initial risk for private investors, allowing better contracts and welfare gains.
The authors also look at empirical data of public procurements and find that renegotiations are generally not conflictual, instead, they are more often described as being due to unforeseen circumstances or other factors outside the contracting parties’ control. They also run regressions for the probability of renegotiations, their size, and the sentiment of the renegotiations on the type of contract. They conclude that PPPs have a higher probability of renegotiations, however, these renegotiations are characterized as more positive and smaller than those of traditional public procurements contracts.
Monitoring and Pay in Dual Labour Markets Presenter: Tore Ellingsen, Stockholm School of Economics
Tore Ellingsen, together with Eirik Gaard Kristiansen, analyses how improvements in workplace monitoring affect workers in a dual labour market setting. Using a model with a traditional sector of small firms and a modern sector of large, more productive firms that face monitoring constraints, they show that better monitoring enables modern firms to expand employment by reducing shirking. As workers reallocate, wages rise across both sectors: traditional sector wages increase due to higher marginal productivity, while modern firms raise wages to attract additional workers. The result is a declining large-firm wage premium, a potential fall in the labour share, and a higher concentration of workers in the most productive firms.
Despite concerns that monitoring allows firms to capture worker rents, the authors show that improved monitoring can benefit all workers. While the model does not capture job polarization or the rise of low-wage modern jobs, Ellingsen noted that extensions with job ladders or relational contracting may address these patterns. Overall, he emphasizes two takeaways: improved monitoring may be a blessing rather than a curse for workers, and several major labour market trends – such as falling labour shares and declining large-firm wage premium – can be explained within an efficiency-wage framework, rather than by increased monopsony power.
Tolerating Losses for Growth: J-Curves in Venture Capital Investing Presenter: Joacim Tåg, Research Institute for Industrial Economics
Joacim Tåg, Alexander Montag, and Thomas Hellmann study venture capital (VC) investments and whether American VCs are more patient in their investments than other investors. They examine so-called J-curves which show the level and duration of losses a new business runs before turning a profit. If American VCs are more patient, they should accept deeper and wider J-curves than their European counterparts.
They exploit Swedish registry data for firms which have received VC investments to investigate how American VC investors affect the shape of the J-curve. They find that American investors are associated with deeper and wider J-curves during the first 8 years after investment. This means they run higher losses for a longer time. This effect is driven by expanding operations in sales. They also find that American investors have much higher initial investments.
The authors explain that American VC investors mitigate financing risks by having more capital and a larger network of other investors.
There is a large amount of heterogeneity due to the size of the investor. Among small VC investors, there is no difference in the size of investments between American and non-American investors. However, the small American investors still exhibit more patience in their J-curves. This is explained through the network effect, smaller investors bring in larger ones, allowing for wider J-curves.
Session II
Platform Openness: Evidence from Bug Bounty Programs Presenter: Tobias Kretschmer, Imperial College and LMU Munich
In modern society, cyberattacks pose a growing threat to the stability of digital infrastructure. Bug bounty platforms use crowd sourcing to connect firms with ethical hackers who identify software vulnerabilities A central issue is how open a program should be – public programs allow anyone to participate, while private programs restrict access to invite- only. Using ten years of detailed activity data from Bugcrowd, Tobias Kretschmer presented a paper where he and his coauthors analyze how openness affects both the quantity and quality of vulnerability discoveries. They find that private programs perform better on average: they attract more experienced researchers and generate a higher number of unique high-priority findings. Yet, public programs remain essential for the overall viability of the platform as they account for half of all submissions and attract the majority of researchers – 69% of whom only ever participate in public programs.
From a dynamic perspective, the program types differ sharply. Compared to public programs, private programs experience a faster decay in submissions and arrival of new users. Exploiting the fact that some programs switch from private to public, the authors show that programs experience an initial boost in activity and researcher diversity once going public, followed by a steeper decline. This reveals a clear quality–quantity trade-off: private programs deliver higher-quality discoveries, while public programs sustain platform vitality by renewing the contributor base.
ESG Aversion: Experimental Evidence on Perceptions and Preferences Presenter: Ye Zhang, Stockholm School of Economics
Ye Zhang and Eric Zou examine the attitudes of the financial market on Environmental-Social-Governance initiatives. They explain, through a theoretical model, that an agent’s demand for ESG initiatives is driven by mechanisms relating to beliefs, such as differing costs, and taste, some investors may have different preferences for ESG initiatives. Since both mechanisms can be positive or negative, the total effect on demand is unclear.
The authors conduct an experiment in two parts. The first part is a two-sided experiment. The first side is startups evaluating VC investors’ profiles and the other is VC-investors evaluating startups. In each part they ask the subjects to evaluate profiles of candidates who are either profit-driven or ESG-driven, as well as E, S, and G separately. They then evaluate these candidates’ profitability, VC prospects, and whether they are interested in contacting them. The second part calculates subjects’ willingness to pay by gauging how much money startups or VCs are willing to sacrifice to match with an ESG-focused candidate.
They conclude that startups have negative beliefs of ESG-driven VCs, completely driven by the environmentally focused ones. This is due to them believing them to be less profitable. However, they also find that startup founders have positive tastes toward ESG. They found the same results for VC investors’ beliefs and preferences toward ESG startups. The authors then conclude that while both investors and startup founders like ESG-focus, they believe it to be costly and unprofitable.
New technology and entrepreneurship Presenter: Hans Hvide, University of Bergen
New technologies are widely seen as engines of economic growth, yet established firms often adapt slowly, raising the question of whether entrepreneurs act as the agents of technological change. Hans Hvide presented a paper where he and Tom Meling address this by exploiting Norway’s staggered broadband rollout (2001-2010) as a natural experiment. Linking comprehensive administrative data on individuals, firms, and ICT usage, they evaluate how improved digital infrastructure affects entrepreneurial activity.
They find that broadband access leads to a sustained 25% increase in startup rates, with no decline in startup quality. The effect is strongest in ICT-intensive industries, and entrepreneurs in treated municipalities are significantly more likely to invest in complementary capital such as computers. These patterns indicate that broadband created new productive opportunities that entrepreneurs seized, leading to increases in firm entry. In contrast, established firms responded only modestly to the new technology, consistent with earlier evidence on slow incumbent adoption. The findings therefore support a Schumpeterian view: entrepreneurship is a primary channel through which economies adapt to technological change
Some thoughts from the work with the Swedish Productivity Commission Presenter: Lars Persson, Research Institute for Industrial Economics
Lars Persson summarized his work with the Swedish Productivity Commission. Persson began with explaining the background and mission of the commission. Productivity is crucial for a country’s welfare he stated, and Sweden has had issues with declining productivity development. The commission has been tasked with finding which factors affect productivity and identifying obstacles and proposals to increase productivity.
The commission found that several key indicators are positive for Sweden, including a very high amount of value added per worker. They also found that a large amount of productivity development is created within firms and with firm entry. Almost no productivity development occurs between or across firms.
Some suggestions from the commission included simplifying regulations and permitting processes and increasing productivity in the public sector by simplifying organization and coordination. Other suggestions were intended to meet the needs of industry facing a structural transformation, for example due to AI. This could be done by granting better tools to the competition authority. The commission also proposes ways to increase the skills and mobility on the labour market to combat skill gaps. The commission also view the emergence of organized crime in the private and public sector as very problematic and something Swedish society needs to be proactive in combatting.
Session III
Regulatory Sandboxes and Commercialization Markets Presenter: Pehr-Johan Norbäck, Research Institute for Industrial Economics
Pehr-Johan Norbäck presented preliminary work on how regulatory sandboxes – controlled environments in which firms can test innovations under lighter, supervised regulation – affect commercialization. Using a theoretical model with asymmetric information and Cournot competition, he demonstrated how regulatory costs shape whether entrepreneurs enter the market or instead choose to sell their product to incumbent firms.
When entry costs are high, only high-quality innovators enter, and entry itself functions as a quality signal. High-quality innovations raise the entrepreneur’s payoff but also create a negative externality for incumbents, who must bid aggressively for acquisition. Lower entry costs in a regulatory sandbox change these incentives: more entrepreneurs enter, including those with lower-quality innovations, exploiting the incumbents’ uncertainty about true quality. High-quality innovators, by contrast, are more likely to opt for early sale, where quality is revealed by the entrepreneur’s willingness to accept an offer.
Overall, lowering regulatory barriers increases commercialization activity, through both entry and acquisition. Norbäck also emphasized a policy implication: if multiple agencies choose different regulatory stances, commercialization costs become uncertain. Assigning a single regulator can enable coordination, strengthen innovation incentives, and increase the expected payoffs for high-quality innovations.
Carbon Pricing and Investment Presenter: Gustav Martinsson, Stockholm University
Gustav Martinsson, James R. Brown, Per Strömberg, and Christian Thomann study the effect of carbon prices on firms’ investment in new capital, including carbon abatement. The authors identify the firm-specific price of carbon and investment into carbon abatement between 2000 and 2019 in Sweden and are particularly interested in a large increase in the carbon price in 2014.
They separate their sample into deciles of emission intensities. The top decile is responsible for a vast majority of carbon emissions and so their response is especially interesting. They find that there is no overall correlation between carbon prices and investment. However, there exists a strong correlation between them in the top decile of emission intensity.
They find that high-emitting firms do respond to higher carbon prices with investments. They estimate that a 10% increase in the marginal cost of carbon will cause a 2% increase in investment spending. This effect, however, is not found for low-emitting firms. This response requires a sufficiently high price of carbon, and the investment is focused on carbon abatement. They construct a model of the effect of the marginal cost of emissions on overall investments and find positive effects for all firms, but it is completely driven by the top decile. They also find a negative effect on dividends, implying firms cut dividends to finance their abatement investments.
Greening Ricardo: Environmental Comparative Advantage and the Environmental Gains From Trade Presenter: Dora Simon, University of Stavanger
Dora Simon presented a paper where she and her coauthors challenge the common view that international trade is an obstacle in the fight against climate change. Instead, they show that, under climate policy, trade can reduce production emissions through environmental comparative advantage – countries specialize in sectors where they are relatively green.
Exploiting cross-country and cross-sector variation in carbon taxation, they find that over one third of the total emission reductions from a carbon tax stem from the environmental gains from trade. Decomposing the mechanisms, they show that while scaling down global production plays only a minor role, two forces dominate: a shift toward greener sectors and a shift toward greener countries, the latter being a channel available only when economies trade.
Notably, according to the presented model, global trade volumes remain largely unchanged even under high carbon taxes, implying that climate policy need not sacrifice the economic gains from trade. Overall, the study offers a new perspective on the role of trade: rather than undermining climate goals, trade can amplify them, provided that accurate climate policies are in place.
Local Corporate Taxation and Business Activity Presenter: Jacob Lundberg, Research Institute for Industrial Economics
Jacob Lundberg & Gabriella Massenz investigate changes in the corporate tax rate in 1985 in Sweden and its effect on different entrepreneurship measures. They utilize a large tax reform in Sweden in 1985, before which a firm’s corporate tax rate depended on a national part and a municipal part, which varied across municipalities. After the reform the corporate tax rate was nationalized, causing every municipality to face the same corporate tax rate. This lowered several firms’ tax rate but increased others.
The authors identify each firm’s number of establishment, employees, and firm entry in different municipalities and run an event study regression on whether the tax rate increased or not. They define treatment using two different cutoffs. The first cutoff is receiving a lower than median tax increase, approximately 1 percentage point decrease, and the second being in the lower quartile of tax increases, approximately 1.5 percentage point decrease.
They estimate a small increase in the number of establishments for treated firms, significant the first year after treatment for the first treatment definition and for at least 5 years for the second definition. However, there is no effect on the number of employees. This effect is driven by larger firms, in terms of pre-reform turnover, which has positive effect on both establishments and number of employees.