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 firstly shows that not only the level of R&D performed by firms is underprovided (as maintained by traditional literature on the subject), but also the level of the subsidy provided by the funding (public) agency (used to correct exactly for the corporate R&D shortage). This event is due to externalities generated by the agency-firm strategic relationship. Two versions of the model are simulated and compared: one assuming rival behaviors between companies and agency, and one associated to the Social-planner (or cooperative) strategy. Secondly, the paper looks at what “welfare” implications are associated to different degree of funding effect’s persistency. Three main conclusions are drawn: (i) the relative quota of subsidy to R&D is undersized in the rival compared to the Social-planner model; (2) the rivalry strategy generates distortions that favor the agency compared to firms; (3) when passing from less persistent to more persistent R&D additionality/crowding-out effect, the lower the bias the greater the variance is and vice versa. As for the management of R&D funding policies, all the elements favouring greater collaboration between agency and firm objectives can help current R&D support to reach its social optimum.
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Bibliographic InfoPaper provided by Institute for Economic Research on Firms and Growth - Moncalieri (TO) in its series CERIS Working Paper with number 201011.
Length: 26 pages
Date of creation: Dec 2010
Date of revision:
R&D subsidies; Rivalry vs. cooperation; Dynamic-stochastic games; Simulations;
Other versions of this item:
- Giovanni Cerulli, 2012. "Are R&D Subsidies Provided Optimally? Evidence from a Simulated Agency-Firm Stochastic Dynamic Game," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 15(1), pages 7.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-15 (All new papers)
- NEP-BEC-2011-08-15 (Business Economics)
- NEP-CSE-2011-08-15 (Economics of Strategic Management)
- NEP-INO-2011-08-15 (Innovation)
- NEP-TID-2011-08-15 (Technology & Industrial Dynamics)
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