Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough
We are very grateful to the editor, Frederic Vermeulen, and to two anonymous referees for their thorough and thoughtful reports. We have also greatly benefited from comments from Richard Gilbert, Henrik Horn, Jens Josephson, Nicola Lacetera, Thomas Roende, Konrad Stahl, Olmo Silva, Yossi Spiegel, Jerry Thursby and participants in seminars at IFN Stockholm, Ninth Annual Roundtable for Engineering Entrepreneurship Research 2009, Swedish Competition Authority's 3rd Workshop on Competition Research 2010, Copenhagen Business School Conference on Success in Entrepreneurship 2010, Swedish Entrepreneurship Forum Workshop for Entrepreneurship Research 2010, Copenhagen Business School, Cagliari University, Royal Institute of Technology (Stockholm), CESifo Venice Summer Institute on Entrepreneurship 2015, and The Second CEPR European Workshop on Entrepreneurship Economics, Cagliari. Financial support from the Marianne and Marcus Wallenberg Foundation, Tom Hedelius' and Jan Wallander's Research Foundation, Vinnova and the Wallander‐Hedelius‐Browaldh Foundation, from the European Regional Development Fund through COMPETE 2020 – Programa Operacional Competitividade e Internacionalização (POCI) and by Portuguese public funds through FCT (Fundação para a Ciência e a Tecnologia) in the framework of the project POCI‐01‐0145‐FEDER‐006890 is gratefully acknowledged. The opinions expressed in this article are the sole responsibility of the authors and should not be interpreted as reflecting the views of the National Institute of Economic Research.
Abstract
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.
