2017

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

Reprint No. 2017:56

Author(s): Erika Färnstrand Damsgaard, Pehr-Johan Norbäck, Lars Persson and Helder VasconcelosYear: 2017 Title: Economic Journal Volume (No.): 127 (605) Pages: 164–199
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Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough Erika Färnstrand Damsgaard, Pehr-Johan Norbäck, Lars Persson and Helder Vasconcelos


This article examines how entrepreneurs and incumbents differ 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 differentiated, entrepreneurs will select projects that are too safe from a social point of view, since they do not internalise the business stealing effect on incumbents. Entry support induces entrepreneurs to choose safer projects, whereas R&D support encourages entrepreneurship without affecting the type of entrepreneurship.


Reference:
Färnstrand Damsgaard, Erika, 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), 164–199.

Pehr-Johan Norbäck

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Lars Persson

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