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How to Allocate R&D (and Other) Subsidies: An Experimentally Tested Policy Recommendation

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Author Info
Thomas Giebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin Spandauer Str. 1, 10099 Berlin, Germany Email: giebe@wiwi.hu.berlin.de)
Tim Grebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin Spandauer Str. 1, 10099 Berlin, Germany Email: grebe @wiwi.hu.berlin.de)
Elmar Wolfstetter (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin Spandauer Str. 1, 10099 Berlin, Germany Email: wolfstetter@wiwi.hu.berlin.de)

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Abstract

This paper evaluates how R&D subsidies to the business sector are typically awarded. We identify two sources of ine_ciency: the selection based on a ranking of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use information about the necessary funding. In order to correct these ine_- ciencies we propose mechanisms that include some form of an auction in which applicants bid for subsidies. Our proposals are tested in a simulation and in controlled lab experiments. The results suggest that adopting our proposals may considerably improve the allocation.

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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number 108.

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Date of creation: Oct 2005
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Handle: RePEc:trf:wpaper:108

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Related research
Keywords: Research; Subsidies; Experimental Economics;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy

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References listed on IDEAS
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. Trajtenberg, M., 2001. "Government Support of Commercial R&D: Lessons from the Israeli Experience," Papers 2001-8, Tel Aviv.
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  2. Alexander Eickelpasch & Michael Fritsch, 2005. "Contests for Cooperation: A New Approach in German Innovation Policy," Discussion Papers of DIW Berlin 478, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  3. Siegel, Donald S, et al, 2003. " Policies Promoting Innovation in Small Firms: Evidence from the U.S. and U.K," Small Business Economics, Springer, vol. 20(2), pages 121-27, March. [Downloadable!] (restricted)
  4. José García-Quevedo, 2004. "Do Public Subsidies Complement Business R&D? A Meta-Analysis of the Econometric Evidence," Kyklos, Blackwell Publishing, vol. 57(1), pages 87-102, 02. [Downloadable!] (restricted)
  5. Martin, Stephen & Scott, John T., 2000. "The nature of innovation market failure and the design of public support for private innovation," Research Policy, Elsevier, vol. 29(4-5), pages 437-447, April. [Downloadable!] (restricted)
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  6. Czarnitzki, Dirk & Fier, Andreas, 2001. "Do R&D subsidies matter? : Evidence for the German service sector," ZEW Discussion Papers 01-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  7. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June. [Downloadable!] (restricted)
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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. Christa Hainz & Hendrik Hakenes, 2009. "The Politician and his Banker – How to Efficiently Grant State Aid," Ifo Working Paper Series Ifo Working Paper No. 71, Ifo Institute for Economic Research at the University of Munich. [Downloadable!]
  2. Ludwig Ensthaler & Thomas Giebe, 2009. "Subsidies, Knapsack Auctions and Dantzig’s Greedy Heuristic," Discussion Papers 254, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  3. Hendrik Hakanes & Christa Hainz, 2008. "The Politician and his Banker," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_01, Max Planck Institute for Research on Collective Goods. [Downloadable!]
    Other versions:
  4. Donja Darai & Jens Grosser & Nadja Trhal, 2009. "Patents versus Subsidies – A Laboratory Experiment," Working Papers 0905, University of Zurich, Socioeconomic Institute. [Downloadable!]
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