Are R&D Subsidies Provided Optimally? Evidence from a Simulated Agency-Firm Stochastic Dynamic Game
AbstractBy means of a simulated funding-agency/supported-firm stochastic dynamic game, this paper shows that the level of the subsidy provided by a funding (public) agency, normally used to correct for firm R&D shortage, might be severely underprovided. This is due to the "externalities" generated by the agency-firm strategic relationship, as showed by comparing two versions of the model: one assuming "rival" behaviors between companies and agency (i.e., the current setting), and one associated to the "cooperative" strategy (i.e. the optimal Pareto-efficient benchmark). The paper looks also at what "welfare" implications are associated to different degrees of persistency in the funding effect on corporate R&D. Three main conclusions are thus drawn: (i) the relative quota of the subsidy to R&D is undersized in the rival compared to the cooperative model; (ii) the rivalry strategy generates distortions that favor the agency compared to firms; (iii) when passing from less persistent to more persistent R&D additionality/crowding-out effect, the lower the distortion the greater the variance is and vice versa. As for the management of R&D funding policies, we suggest that all the elements favouring greater collaboration between agency and firm objectives may help current R&D support to approach its social optimum.
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Bibliographic InfoArticle provided by Journal of Artificial Societies and Social Simulation in its journal Journal of Artificial Societies and Social Simulation.
Volume (Year): 15 (2012)
Issue (Month): 1 ()
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R&D Subsidies; Rivalry Versus Cooperation; Dynamic-Stochastic Games; Simulations;
Other versions of this item:
- Giovanni Cerulli, 2010. "Are R&D subsidies provided optimally? Evidence from a simulated agency-firm stochastic dynamic game," CERIS Working Paper 201011, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
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