Subsidizing Technological Innovations in the Presence of R&D Spillovers
AbstractWe analyze a situation where a principal wants to induce two firms to produce an output, for example electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output is always higher under the tournament, even though this scheme may lead to more innovation. Copyright 2008 The Authors. Journal compilation Verein für Socialpolitik and Blackwell Publishing Ltd. 2008.
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Bibliographic InfoArticle provided by Verein für Socialpolitik in its journal German Economic Review.
Volume (Year): 9 (2008)
Issue (Month): (08)
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Other versions of this item:
- Helm, Carsten & Schöttner, Anja, 2005. "Subsidizing Technological Innovations in the Presence of R&D Spillovers," Darmstadt Discussion Papers in Economics 36798, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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