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Evaluating innovation policy: a structural treatment effect model of R&D subsidies

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Author Info
Takalo, Tuomas () (Bank of Finland Research)
Tanayama, Tanja () (HECER, University of Helsinki)
Toivanen, Otto () (HECER, University of Helsinki)

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Abstract

This paper studies the welfare effects of R&D subsidies. We develop a model of continuous optimal treatment with outcome heterogeneity where the treatment outcome depends on applicant investment. The model takes into account heterogeneous application costs and identifies the treatment effect on the public agency running the programme. Under the assumption of a welfare-maximizing agency, we identify general equilibrium treatment effects. Applyiing our model to R&D project-level data we find substantial treatment effect heterogeneity. Agency-specific treatment effects are smaller than private treatment effects. We find that the rate of return on subsidies for the agency is 30–50%.

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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 7/2008.

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Length: 59 pages
Date of creation: 11 Mar 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_007

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: applications; effort; investment; R&D; selection; subsidies; treatment programme; treatment effects; welfare;

Other versions of this item:

Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kinnunen, Helvi, 2008. "Government funds and demographic transition – alleviating ageing costs in a small open economy," Research Discussion Papers 21/2008, Bank of Finland. [Downloadable!]
  2. Jokivuolle, Esa & Virolainen, Kimmo & Vähämaa, Oskari, 2008. "Macro-model-based stress testing of Basel II capital requirements," Research Discussion Papers 17/2008, Bank of Finland. [Downloadable!]
  3. Kilponen , Juha & Viren, Matti, 2008. "Why do growth rates differ? Evidence from cross-country data on private sector production," Research Discussion Papers 13/2008, Bank of Finland. [Downloadable!]
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