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Government policy failure in public support for research and development

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  • Mika Haapanen
  • Helena Lenihan
  • Marco Mariani

Abstract

Promoting Research and Development (R&D) and innovative activity is a key element of the EU Lisbon Agenda and is seen as playing a central part in stimulating economic development. In this paper we argue that, even allowing for benevolent policy-makers, informational asymmetries can lead to a misallocation of public support for R&D, hence government policy failure, with the potential to exacerbate preexisting market failures. Initially, we explore alternative allocation mechanisms for public support, which can help to minimize the scale of these government policy failures. Of these mechanisms (grants, tax credits, or allocation rules based on past performance), our results suggest that none is universally most efficient. Rather, the effectiveness of each allocation rule depends on the severity of financial constraints and on the level of innovative capabilities of the firms themselves.

Suggested Citation

  • Mika Haapanen & Helena Lenihan & Marco Mariani, 2014. "Government policy failure in public support for research and development," Policy Studies, Taylor & Francis Journals, vol. 35(6), pages 557-575, November.
    • Handle: RePEc:taf:cposxx:v:35:y:2014:i:6:p:557-575
    DOI: 10.1080/01442872.2014.971728
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    Cited by:

    1. Boxu Yang & Xielin Liu & Yuchen Gao & Langmei Zhu, 2023. "A research on the effectiveness of innovation policy for regional innovation under Chinese long-range plan," Science and Public Policy, Oxford University Press, vol. 50(3), pages 491-508.
    2. Perez-Alaniz, Mauricio & Lenihan, Helena & Doran, Justin & Rammer, Christian, 2024. "Subsidising innovation outside or within firms' existing knowledge base: Which is best for radical innovation?," ZEW Discussion Papers 24-007, ZEW - Leibniz Centre for European Economic Research.
    3. Annalisa Caloffi & Marco Mariani, 2018. "Regional policy mixes for enterprise and innovation: A fuzzy-set clustering approach," Environment and Planning C, , vol. 36(1), pages 28-46, February.
    4. Doina I. POPESCU & Sebastian - Ion CEPTUREANU & Eduard - Gabriel CEPTUREANU, 2017. "PECULIARITIES OF STRATEGY IN SMEs," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 11(1), pages 617-632, November.

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