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.