Do incentives matter to promote high technology-driven entrepreneurial activity?

A productive human capital is a necessary but not sufficient condition for regional economic growth. An additional condition is the adequate allocation of talented people in innovative entrepreneurial activities, which according to previous literature have a higher social value than traditional ones. Using a large and representative sample of small and medium enterprises (SMEs) located in the Basque Autonomous Community (Spain), we empirically analyze, separately in manufacture and services, whether individual incentives and market conditions are aligned in such a way that the talent is properly allocated in innovative entrepreneurial activities. Through a novel use of existing empirical methods we find that (i) entrepreneurs operating in high-tech sectors have, on average, more entrepreneurial talent and private returns than their counterparts; and that (ii) entrepreneurial talent and private returns are positively and significantly correlated. These novel insights suggest that private and social incentives are adequately aligned.