Interaction in R&D and the Case-by-Case Subsidy Rule
AbstractThis paper studies the performance of government subsidy programs which fund business R&D projects. A commonly used criterion for distributing funding is the case-by-case (CbC) rule. Under the rule, project funding is decided based on the gap between a project’s social and private return. This paper finds that in the presence of pervasive complementarity in R&D activities CbC funding is socially excessive. On the other hand, in the presence of pervasive substitutability in R&D activities CbC funding is socially insufficient. Since the situation can differ greatly from one industry to the next, these findings suggest governments may be over-funding research in some industries at the expense of research in other under-funded industries.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2010/36.
Date of creation: 2010
Date of revision:
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R&D Subsidies; Interaction in R&D; Case-by-Case Subsidy Rule; Welfare;
Find related papers by JEL classification:
- H40 - Public Economics - - Publicly Provided Goods - - - General
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
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