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Sunk costs, extensive R&D subsidies and permanent inducement effects

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  • Pere Arqué-Castells

    ()
    (Universitat Autònoma de Barcelona & IEB)

  • Pierre Mohnen

    ()
    (University of Maastricht)

Abstract

We study whether there is scope for using subsidies to smooth out barriers to R&D performance and expand the share of R&D firms in Spain. We consider a dynamic model with sunk entry costs in which firms’ optimal participation strategy is defined in terms of two subsidy thresholds that characterise entry and continuation. We compute the subsidy thresholds from the estimates of a dynamic panel data type-2 tobit model for an unbalanced panel of about 2,000 Spanish manufacturing firms. The results suggest that “extensive” subsidies are a feasible and efficient tool for expanding the share of R&D firms.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/13.

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Length: 62 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ieb:wpaper:2012/5/doc2012-13

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Keywords: R&D; persistence; subsidies; dynamic models;

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  20. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers, Norwegian School of Economics and Business Administration- 16/99, Norwegian School of Economics and Business Administration-.
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