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The Return to Independent Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving?

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  • Thomas Astebro

    (University of Waterloo)

Abstract

Examining a sample of 1,091 inventions I investigate the magnitude and distribution of the pretax internal rate of return (IRR) to inventive activity. The average IRR on a portfolio investment in these inventions is 11.4%. This is higher than the risk--free rate but lower than the long--run return on high--risk securities and the long--run return on early--stage venture capital funds. The portfolio IRR is significantly higher, for some ex ante identifiable classes of inventions. The distribution of return is skew: only between 7--9% reach the market. Of the 75 inventions that did, six realised returns above 1400%, 60% obtained negative returns and the median was negative. Copyright Royal Economic Society 2003.

Suggested Citation

  • Thomas Astebro, 2003. "The Return to Independent Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving?," Economic Journal, Royal Economic Society, vol. 113(484), pages 226-239, January.
    • Handle: RePEc:ecj:econjl:v:113:y:2003:i:484:p:226-239
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    References listed on IDEAS

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