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Applied innovation is risky requires investments into new devices, training, new logistic chains etc.

>Hall and Woodward (2010) provide a different perspective. Using an extensive data set on venture capital funding from 1987 until 2008, they show that the returns to entrepreneurs are extremely skewed: nearly 3/4ths of entrepreneurs receive nothing at exit, while a few receive more than a billion dollars. An entrepreneur with a coefficient of relative risk aversion of two values this lottery with a certainty equivalent of only slightly more than zero. An implication is that the tax rate that applies to the successful outcome can have a substantial influence on entrepreneurial activity.

I find it hard to see how taxation does not disincentivize applied innovation in the margin.

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