Cooperation or non-cooperation in R&D: how should research be funded?

This article compares two research funding policies in a cooperative or non-cooperative R&D setting: subsidising private research (Spr) and subsidising public research (Spu). We show that the Spr policy induces better performance than the Spu approach in terms of overall net surplus whether firms cooperate or not in R&D. Nevertheless, subsidising public research leads to greater R&D investment overall provided that the knowledge externalities from the public to the private research sector are not too high. The Spu policy is more effective in terms of research efforts when firms cooperate and subsidies are low.