Working Paper No. 926

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

Published: September 18, 2012Pages: 41Keywords: Entrepreneurship; Innovation; Start-ups; Ownership; Breakthrough; QualityJEL-codes: G24; L1; L2; M13; O3
Published version

Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough Erika Färnstrand Damsgaard, Pehr-Johan Norbäck, Lars Persson and Helder Vasconcelos


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.

Pehr-Johan Norbäck

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Ph: +46 8 665 4522
Mob: +46 73 547 3379
pehr-johan.norback@if...

Lars Persson

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Ph: +46 8 665 4504
lars.persson@ifn.se

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

Omslag 2017 Institutional Reform for Innovation and Entrepreneurship.jpg

The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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