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R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments

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  • Jiaqi Chen
  • Sang‐Ho Lee
  • Timur K. Muminov

Abstract

This study examines firms’ decisions on cost‐reducing research and development (R&D) along with the government's output subsidy policy with research spillovers. We investigate flexible and irreversible R&D, where investment is sequentially chosen after the realization of output subsidy rate in the former and simultaneously chosen with the expectation of subsidy policy in the latter. We demonstrate that compared to irreversible R&D, output subsidy is larger (smaller) for relatively high (low) spillovers, and the welfare is always higher under flexible R&D. We also compare mixed and private duopolies and show that privatization increases (decreases) not only output subsidy but welfare in both cases when the spillovers rate is relatively low (high).

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  • Jiaqi Chen & Sang‐Ho Lee & Timur K. Muminov, 2022. "R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 879-899, July.
    • Handle: RePEc:bla:buecrs:v:74:y:2022:i:3:p:879-899
    DOI: 10.1111/boer.12324
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    2. Chul‐Hi Park & Sang‐Ho Lee, 2023. "Emission taxation, green R&D, and managerial delegation contracts with environmental and sales incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2366-2377, June.

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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