Title: R&D profitability: the role of risk and Knightian uncertainty
Citation: SMALL BUSINESS ECONOMICS vol. 48 no. 2 p. 331-343
Publisher: SPRINGER
Publication Year: 2017
JRC N°: JRC102538
ISSN: 0921-898X
URI: http://rd.springer.com/article/10.1007/s11187-016-9776-z
DOI: 10.1007/s11187-016-9776-z
Type: Articles in periodicals and books
Abstract: This paper provides the first empirical attempt of linking firms’ profits and investment in R&D revisiting Knight’s (Risk, uncertainty and profit, Hart, Schaffner & Marx, Boston, 1921) distinction between uncertainty and risk. Along with the risky profit-maximising scenario, identifying a second, off-setting, unpredictable bias that leads to heterogeneous returns to R&D investments is crucial to fully understand the drivers of corporate profits. Consistently with the Knightian theory that relates risk to profitability, we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity, a particular type of uncertainty, on R&D returns.
JRC Directorate:Growth and Innovation

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