We analyze incentives to develop entrepreneurial ideas for venture capitalists (VCs) and incumbent firms. If VCs are sufficiently better at judging an idea's value and if it is sufficiently more costly to patent low than high value ideas, VCs acquire valuable ideas, develop them beyond the level...

Stimulating entrepreneurship is high on the policy agenda of many countries. We study the effects of tax policies on entrepreneurs’ choice of riskiness (quality) of an innovation project, and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset...

In industries with network effects, incumbents’ installed bases create barriers to entry that discourage entrepreneurs from developing new innovations. Yet, entry is not the only commercialization route for entrepreneurs. We show that the option of selling to an incumbent increases innovation...