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Regulating innovative activity : The role of a public firm

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  • Delbono, Flavio
  • Denicolo, Vincenzo

Abstract

Without spillovers and under the winner-take-all hypothesis, there is overinvestment in R&D in a non cooperative equilibrium. This is due to the so-called common pool problem , i.e., duplication of efforts. We show that a public firm can represent a useful instrument in the hands of a policymaker to mitigate such a problem. More precisely, it is provided that, in a mixed duopoly: (i) each firm invest less than in a private duopoly, (ii) although the expected time of innovation is postponed, social welfare is higher than in a private duopoly.
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Suggested Citation

  • Delbono, Flavio & Denicolo, Vincenzo, 1993. "Regulating innovative activity : The role of a public firm," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 35-48, March.
    • Handle: RePEc:eee:indorg:v:11:y:1993:i:1:p:35-48
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