Incremental R$D Subsidies
AbstractAn Incremental Incentive Scheme (IIS) encourages some activity by rewarding an agent for overachieving a base level determined by past performance but not penalizing underachievement. We examine an IIS R&D subsidy in a dynamic model due to Grossman and Shapiro (1986). We show that the firm's optimal R&D path either cycles around the no-subsidy path or follows a "ratchet" pattern of small increases in R&D relative to the no-subsidy path. A simple condition determines which type of behavior occurs. Furthermore, we show that an IIS may be an inefficient method of encouraging R&D compared to a flat-rate subsidy. Copyright 1995 by Kluwer Academic Publishers
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Bibliographic InfoPaper provided by Princeton, Woodrow Wilson School - Public and International Affairs in its series Papers with number 133.
Length: 28 pages
Date of creation: 1988
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research and development ; subsidies ; industry ; behaviour;
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- Russell Thomson, 2013.
"Measures of R&D Tax Incentives for OECD Countries,"
Review of Economics and Institutions,
Università di Perugia, vol. 4(3).
- Russell Thomson & Elizabeth Webster, 2011. "The Design of R&D Support Schemes for Industry," Melbourne Institute Working Paper Series wp2011n24, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- Russell Thomson, 2010.
"Tax Policy and R&D Investment by Australian Firms,"
The Economic Record,
The Economic Society of Australia, vol. 86(273), pages 260-280, 06.
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