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R&D Subsidies and the Surplus Appropriability Problem


  • Sørensen Anders

    () (Copenhagen Business School and Centre for Economic and Business Research)


It may be optimal from a welfare perspective to use R&D subsidies when the source of R&D distortions originates from the surplus appropriability problem and technological spillovers in the form of knowledge spillovers, creative destruction, and duplication externalities are absent. Hence, R&D subsidies may constitute the welfare maximizing policy even when subsidies directly targeted on monopoly pricing could be applied. The result holds when dynamic gains are important relative to static gains and when government spending is restricted, i.e., below the required effort for correcting completely for market failures. The argument is developed in a semi-endogenous growth model where the only distortion is monopoly pricing of intermediate goods.

Suggested Citation

  • Sørensen Anders, 2006. "R&D Subsidies and the Surplus Appropriability Problem," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-29, August.
  • Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:2:n:3

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    References listed on IDEAS

    1. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
    2. Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
    3. Charles I. Jones & John C. Williams, 1998. "Measuring the Social Return to R&D," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1119-1135.
    4. Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 327-361.
    5. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    6. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    7. Casey B. Mulligan & Xavier Sala-i-Martin, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 739-773.
    8. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, January.
      • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, January.
    9. Alvarez-Pelaez, Maria J. & Groth, Christian, 2005. "Too little or too much R&D?," European Economic Review, Elsevier, vol. 49(2), pages 437-456, February.
    10. Casey B. Mulligan & Xavier Sala-i-Martin, 1991. "A Note on the Time-Elimination Method For Solving Recursive Dynamic Economic Models," NBER Technical Working Papers 0116, National Bureau of Economic Research, Inc.
    11. Ballard, Charles L., 1990. "Marginal welfare cost calculations : Differential analysis vs. balanced-budget analysis," Journal of Public Economics, Elsevier, vol. 41(2), pages 263-276, March.
    12. Lars Hokonsen, 1998. "An Investigation into Alternative Representations of the Marginal Cost of Public Funds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 329-343, July.
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    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


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