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Spillovers, subsidies, and second‐best socially optimal R&D

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  • Rabah Amir
  • Huizhong Liu
  • Dominika Machowska
  • Joana Resende

Abstract

This paper provides a thorough second‐best welfare analysis of the standard two‐stage model of R&D/product market competition with R&D spillovers. The planner's solution is compared to the standard non‐cooperative scenario, the R&D cartel, and the cartelized research joint venture (or joint lab). We introduce the notion of a social joint lab, as a way for the planner to avoid wasteful R&D duplication. With no spillovers, the non‐cooperative scenario, the joint lab, and the second‐best planner's solutions coincide. However, with spillovers, all three scenarios yield R&D investments that fall short of the socially optimal level. To shed light on the role of the spillover level on these comparisons, we observe that the gaps between the market outcomes and the planners solutions widen as the spillover parameter increases. Finally, we establish that a social planner and a social joint lab solutions may be achieved starting from any of the three scenarios by offering firms respective suitably weighted quadratic R&D subsidization schedules.

Suggested Citation

  • Rabah Amir & Huizhong Liu & Dominika Machowska & Joana Resende, 2019. "Spillovers, subsidies, and second‐best socially optimal R&D," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(6), pages 1200-1220, December.
  • Handle: RePEc:bla:jpbect:v:21:y:2019:i:6:p:1200-1220
    DOI: 10.1111/jpet.12411
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    Cited by:

    1. Buccella Domenico & Fanti Luciano & Gori Luca, 2023. "The R&D Investment Decision Game with Product Differentiation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 23(2), pages 601-637, June.
    2. Lili Xu & Yidan Zhang & Sang‐Ho Lee, 2024. "Effects of partial passive ownership in a successive endogenous timing game with R&D spillovers," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 283-297, January.
    3. Brunner, Philipp & Letina, Igor & Schmutzler, Armin, 2024. "Research joint ventures: The role of financial constraints," European Economic Review, Elsevier, vol. 165(C).
    4. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2023. "The disclosure decision game: Subsidies and incentives for R&D activity," Mathematical Social Sciences, Elsevier, vol. 125(C), pages 11-26.
    5. Michal Ramsza & Adam Karbowski & Tadeusz Platkowski, 2021. "Process R&D investment and social dilemmas," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 315-336, September.
    6. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2021. "A contribution to the theory of R&D investments," GLO Discussion Paper Series 940, Global Labor Organization (GLO).
    7. Yihao Cao & Ehsan Elahi & Zainab Khalid & Ping Li & Pengsheng Sun, 2023. "How Do Intellectual Property Rights Affect Green Technological Innovation? Empirical Evidence from China," Sustainability, MDPI, vol. 15(10), pages 1-17, May.
    8. Ikeda, Takeshi & Tanno, Tadanobu & Yasaki, Yoshihito, 2021. "Optimal intellectual property rights policy by an importing country," Economics Letters, Elsevier, vol. 209(C).
    9. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2023. "Optimal R&D disclosure in network industries," Economic Systems, Elsevier, vol. 47(4).
    10. Xing, Mingqing & Tan, Tingting & Wang, Xia, 2021. "Emission taxes and environmental R&D risk choices in a duopoly market," Economic Modelling, Elsevier, vol. 101(C).

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