Presentation of paper

When do independent innovators make the break-through inventions?

Speaker

Lars Persson - Research Institute of Industrial Economics Stockholm

Abstract

Erika Färnstrand Damsgaard, Pehr-Johan Norbäck, Lars Persson and Helder Vasconcelos

We propose a model where incumbents and entrepreneurs invest in research projects, and where the entrepreneurs face entry costs. We show that if entry costs are high, entrepreneurs choose research projects with lower probability of success and higher payoff than the incumbents'. The reason is that, by so doing, the entrepreneur can then avoid the high entry cost in the cases the project fails. We show that commercialization support to entrepreneurs not only increases entrepreneurial investment, but also induces entrepreneurs aim for less risky projects. Whereas R&D subsidies only increase entrepreneurial investment without affecting the project type

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