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Business R&D and the Interplay of R&D Subsidies and Market Uncertainty Author info | Abstract | Publisher info | Download info | Related research | Statistics Czarnitzki, Dirk
Toole, Andrew A.
The literature suggests that public research and development (R&D) subsidies may reduce market failures affecting private R&D investment caused by incomplete appropriability of knowledge and financial constraints due capital market imperfections. Drawing on the theory of investment under uncertainty, this paper argues that public R&D subsidies increase business R&D investment through an additional mechanism ? mitigating the effects of market uncertainty on R&D investment in markets for new products. Using a sample of German manufacturing firms, we show that market uncertainty indeed reduces R&D investment, and that R&D subsidies mitigate the effect of uncertainty. Our findings suggest that public policies aimed at increasing business R&D investment can achieve this objective by reducing the degree of uncertainty in the demand for innovative products. --
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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number
06-55.
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Date of creation: 2006Date of revision:
Handle: RePEc:zbw:zewdip:5449Contact details of provider: Postal: L 7,1; D - 68161 Mannheim Phone: +49/621/1235-01 Fax: +49/621/1235-224 Email: Web page: http://www.zew.de/ More information through EDIRC
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Keywords: Real Options Theory ; Uncertainty ; R&D ; Censored Regression ; Other versions of this item:
Find related papers by JEL classification: C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
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