Subsidizing Technological Innovations in the Presence of R&D Spillovers
AbstractWe analyze a situation where a principal wants to induce firms to produce an output, e.g. electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production costs of the output. Parts of these investments spills over and also reduce production costs of the other firm. Comparing the general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output are always higher under the tournament, even though this scheme may lead to more innovation.
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Bibliographic InfoPaper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 36798.
Date of creation: Nov 2005
Date of revision:
Publication status: Published in Darmstadt Discussion Papers in Economics . 154 (2005-11)
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R&D spillovers; tournaments; subsidies; moral hazard;
Other versions of this item:
- Carsten Helm & Anja Schöttner, 2008. "Subsidizing Technological Innovations in the Presence of R&D Spillovers," German Economic Review, Verein für Socialpolitik, vol. 9, pages 339-353, 08.
- 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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