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

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  • Giebe, Thomas
  • Grebe, Tim
  • Wolfstetter, Elmar G.

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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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 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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Keywords: Research; Subsidies; Experimental Economics;

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References

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  1. 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.
  2. Manuel Trajtenberg, 2002. "Government Support for Commercial R&D: Lessons from the Israeli Experience," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 79-134 National Bureau of Economic Research, Inc.
  3. Martin, Stephen & Scott, John T., 2000. "The nature of innovation market failure and the design of public support for private innovation," Research Policy, Elsevier, Elsevier, vol. 29(4-5), pages 437-447, April.
  4. Czarnitzki, Dirk & Fier, Andreas, 2001. "Do R&D subsidies matter? Evidence for the German service sector," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 01-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  6. José García-Quevedo, 2004. "Do Public Subsidies Complement Business R&D? A Meta-Analysis of the Econometric Evidence," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 57(1), pages 87-102, 02.
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Cited by:
  1. Christa Hainz & Hendrik Hakenes, 2007. "The Politician and his Banker," CESifo Working Paper Series 2153, CESifo Group Munich.
  2. Ensthaler, Ludwig & Giebe, Thomas, 2010. "A dynamic auction for multi-object procurement under a hard budget constraint," Discussion Paper Series of 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 310, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Ensthaler, Ludwig & Giebe, Thomas, 2014. "Bayesian optimal knapsack procurement," European Journal of Operational Research, Elsevier, Elsevier, vol. 234(3), pages 774-779.
  4. Ensthaler, Ludwig & Giebe, Thomas, 2009. "Subsidies, Knapsack Auctions and Dantzig’s Greedy Heuristic," Discussion Paper Series of 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 254, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. 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.
  6. Ozer, Muammer, 2007. "Reducing the demand uncertainties at the fuzzy-front-end of developing new online services," Research Policy, Elsevier, Elsevier, vol. 36(9), pages 1372-1387, November.
  7. Donja Darai & Jens Grosser & Nadja Trhal, 2009. "Patents versus Subsidies – A Laboratory Experiment," SOI - Working Papers, Socioeconomic Institute - University of Zurich 0905, Socioeconomic Institute - University of Zurich.
  8. Christoph Helbach & Klemens Keldenich & Michael Rothgang & Guanzhong Yang, 2012. "Call Me if You Can – An Experimental Investigation of Information Sharing in Knowledge Networks," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0332, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  9. Laura Magazzini & Fabio Pammolli & Massimo Riccaboni, 2009. "Nuove politiche per l'innovazione nel settore delle scienze della vita," Working Papers, Competitività Regole Mecati (CERM) 03-2009, Competitività Regole Mecati (CERM).
  10. Bannò, Mariasole & Sgobbi, Francesca, 2010. "Firm participation in financial incentive programmes: The case of subsidies for outward internationalisation," Journal of Policy Modeling, Elsevier, Elsevier, vol. 32(6), pages 792-803, November.

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