Pros and Cons of Backing Winners in Innovation Policy
AbstractIn the economics profession there is a fierce debate whether industrial and innovation policy should be targeted to specific sectors or firms. This paper discusses the welfare effects of such targeted policies in a third-market international trade model under imperfect competition. A theoretical case for picking winners through a preferential innovation policy is discussed, which is shown to hold without evoking retaliation from foreign competitors. However, in practice information uncertainties remain a concern. The question whether in this case ‘backing winners’ is a wise policy option depends on the characteristics of the information asymmetries and on the extent the government is able to design selection procedures in a way to minimize the transaction costs that may be caused from the market participants’ opportunistic behavior.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17658.
Date of creation: Feb 2009
Date of revision:
Innovation policy; R&D subsidies; strategic trade policy; asymmetric information; spill-over effects;
Other versions of this item:
- Frank A.G. den Butter & Seung-gyu Jo, 2009. "Pros and Cons of ‘Backing Winners’ in Innovation Policy," Tinbergen Institute Discussion Papers 09-012/3, Tinbergen Institute.
- O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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