Are R&D Subsidies Provided Optimally? Evidence from a Simulated Agency-Firm Stochastic Dynamic Game
By means of a simulated funding-agency/supported-firm stochastic dynamic game, this paper shows that the level of the subsidy provided by a funding (public) agency, normally used to correct for firm R&D shortage, might be severely underprovided. This is due to the "externalities" generated by the agency-firm strategic relationship, as showed by comparing two versions of the model: one assuming "rival" behaviors between companies and agency (i.e., the current setting), and one associated to the "cooperative" strategy (i.e. the optimal Pareto-efficient benchmark). The paper looks also at what "welfare" implications are associated to different degrees of persistency in the funding effect on corporate R&D. Three main conclusions are thus drawn: (i) the relative quota of the subsidy to R&D is undersized in the rival compared to the cooperative model; (ii) the rivalry strategy generates distortions that favor the agency compared to firms; (iii) when passing from less persistent to more persistent R&D additionality/crowding-out effect, the lower the distortion the greater the variance is and vice versa. As for the management of R&D funding policies, we suggest that all the elements favouring greater collaboration between agency and firm objectives may help current R&D support to approach its social optimum.
Volume (Year): 15 (2012)
Issue (Month): 1 ()
|Contact details of provider:|| |
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.:
- Wesley M Cohen & Richard R Nelson & John P Walsh, 2003.
"Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not),"
Levine's Working Paper Archive
618897000000000624, David K. Levine.
- Wesley M. Cohen & Richard R. Nelson & John P. Walsh, 2000. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)," NBER Working Papers 7552, National Bureau of Economic Research, Inc.
- Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
- J. D. Howe & D. G. McFetridge, 1976. "The Determinants of R & D Expenditures," Canadian Journal of Economics, Canadian Economics Association, vol. 9(1), pages 57-71, February.
- repec:fth:harver:1473 is not listed on IDEAS
- Barro, Robert J. & Sala-i-Martin, Xavier, 1995.
"Technological Diffusion, Convergence and Growth,"
CEPR Discussion Papers
1255, C.E.P.R. Discussion Papers.
- Robert J. Barro & Xavier Sala-i-Martin, 1995. "Technological diffusion, convergence and growth," Economics Working Papers 116, Department of Economics and Business, Universitat Pompeu Fabra.
- Sala-i-martin, X. & Barro, R.J., 1995. "technological Diffusion, Convergence and Growth," Papers 735, Yale - Economic Growth Center.
- Robert J. Barro & Xavier Sala-i-Martin, 1995. "Technological Diffusion, Convergence, and Growth," NBER Working Papers 5151, National Bureau of Economic Research, Inc.
- Valentina Cristiana MATERIA & Roberto ESPOSTI, 2010. "Modelling Agricultural Public R&D Cofinancing Within A Principal-Agent Framework. The case of an Italian region," Working Papers 347, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Edwin Mansfield, 1964. "Industrial Research and Development Expenditures: Determinants, Prospects, and Relation to Size of Firm and Inventive Output," Journal of Political Economy, University of Chicago Press, vol. 72, pages 319-319.
- Joshua D. Angrist & Guido W. Imbens, 1995.
"Average Causal Response with Variable Treatment Intensity,"
NBER Technical Working Papers
0127, National Bureau of Economic Research, Inc.
- Angrist, J.D. & Imbens, G.W., 1992. "Average causal response with variable treatment intensity," Discussion Paper 1992-34, Tilburg University, Center for Economic Research.
- Angrist, J.D. & Imbens, G.W., 1992. "Average Causal Response with Variable Treatment Intensity," Papers 9234, Tilburg - Center for Economic Research.
- Imbens, G. & Angrist, J.D., 1992. "Average Causal Response with Variable Treatment Intensity," Harvard Institute of Economic Research Working Papers 1611, Harvard - Institute of Economic Research.
- Benjamin Bental & Dan Peled, 2002. "Quantitative growth effects of subsidies in a search theoretic R&D model," Journal of Evolutionary Economics, Springer, vol. 12(4), pages 397-423.
- Wyplosz, Charles, 1991. "International trade with endogenous technological change : by L.A. Rivera-Batiz and P.M. Romer," European Economic Review, Elsevier, vol. 35(4), pages 1002-1004, May.
- Dasgupta, Partha, 1988. "Patents, Priority and Imitation or, the Economics of Races and Waiting Games," Economic Journal, Royal Economic Society, vol. 98(389), pages 66-80, March.
- Fagerberg, Jan & Srholec, Martin, 2008.
"National innovation systems, capabilities and economic development,"
Elsevier, vol. 37(9), pages 1417-1435, October.
- Jan Fagerberg & Martin Srholec, 2007. "National innovation systems, capabilities and economic development," Working Papers on Innovation Studies 20071024, Centre for Technology, Innovation and Culture, University of Oslo.
- A. Filippetti & A. Peyrache, 2010. "The Globalization of Technological Capabilities of Countries: A Dual Approach Using Composite Indicators & Data Envelopment Analysis," CEPA Working Papers Series WP102010, School of Economics, University of Queensland, Australia.
- Archibugi, Daniele & Coco, Alberto, 2005. "Measuring technological capabilities at the country level: A survey and a menu for choice," Research Policy, Elsevier, vol. 34(2), pages 175-194, March.
- Rivera-Batiz, Luis A. & Romer, Paul M., 1991.
"International trade with endogenous technological change,"
European Economic Review,
Elsevier, vol. 35(4), pages 971-1001, May.
- Luis A. Rivera-Batiz & Paul M. Romer, 1991. "International Trade with Endogenous Technological Change," NBER Working Papers 3594, National Bureau of Economic Research, Inc.
- Zvi Griliches, 1998.
"Patent Statistics as Economic Indicators: A Survey,"
in: R&D and Productivity: The Econometric Evidence, pages 287-343
National Bureau of Economic Research, Inc.
- Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
- Zvi Griliches, 1990. "Patent Statistics as Economic Indicators: A Survey," NBER Working Papers 3301, National Bureau of Economic Research, Inc.
- Bianca Potì & Giovanni Cerulli, 2011. "Evaluation of firm R&D and innovation support: new indicators and the ex-ante prediction of ex-post additionality," Research Evaluation, Oxford University Press, vol. 20(1), pages 19-29, March.
- Godin, Benoit, 2007. "Science, accounting and statistics: The input-output framework," Research Policy, Elsevier, vol. 36(9), pages 1388-1403, November.
- Hall, Bronwyn, 2002.
"The Financing of Research and Development,"
Department of Economics, Working Paper Series
qt5rf0x9gz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar Publishing.
- Bronwyn H. Hall, 2002. "The Financing of Research and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 35-51, Spring.
- Bronwyn H. Hall, 2003. "The Financing of Research and Development," Finance 0303003, EconWPA.
- Bronwyn H. Hall, 2002. "The Financing of Research and Development," NBER Working Papers 8773, National Bureau of Economic Research, Inc.
- Hall, Bronwyn H., 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series qt34c1c643, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Paul M Romer, 1999.
"Endogenous Technological Change,"
Levine's Working Paper Archive
2135, David K. Levine.
- James Davidson & Robert de Jong, 1997. "Strong laws of large numbers for dependent heterogeneous processes: a synthesis of recent and new results," Econometric Reviews, Taylor & Francis Journals, vol. 16(3), pages 251-279.
- M. Ishaq Nadiri, 1979. "Contributions and Determinants of Research and Development Expenditures in the U.S. Manufacturing Industries," NBER Working Papers 0360, National Bureau of Economic Research, Inc.
- Giovanni Cerulli & Bianca Potì, 2010.
"The differential impact of privately and publicly funded R&D on R&D investment and innovation: The Italian case,"
10, Doctoral School of Economics, Sapienza University of Rome, revised 2010.
- Giovanni Cerulli & Bianca Potì, 2012. "The differential impact of privately and publicly funded R&D on R&D investment and innovation: the Italian case," Prometheus, Taylor & Francis Journals, vol. 30(1), pages 113-149, March.
- Schmookler, Jacob, 1962. "Economic Sources of Inventive Activity," The Journal of Economic History, Cambridge University Press, vol. 22(01), pages 1-20, March.
- James, M.J., 2006. "An institutional critique of recent attempts to measure technological capabilities across countries," Other publications TiSEM 05175942-7ecf-410c-9e17-b, Tilburg University, School of Economics and Management.
- Wooldridge, Jeffrey M., 1997. "On two stage least squares estimation of the average treatment effect in a random coefficient model," Economics Letters, Elsevier, vol. 56(2), pages 129-133, October.
- Martin, Stephen & Scott, John T., 2000.
"The nature of innovation market failure and the design of public support for private innovation,"
Elsevier, vol. 29(4-5), pages 437-447, April.
- Stephen Martin & John T. Scott, 1999. "The Nature of Innovation Market Failure and the Design of Public Support for Private Innovation," CIE Discussion Papers 1999-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- Malerba, Franco & Orsenigo, Luigi, 1996. "The Dynamics and Evolution of Industries," Industrial and Corporate Change, Oxford University Press, vol. 5(1), pages 51-87.
- Rosenberg, Nathan, 1990. "Why do firms do basic research (with their own money)?," Research Policy, Elsevier, vol. 19(2), pages 165-174, April.
When requesting a correction, please mention this item's handle: RePEc:jas:jasssj:2011-1-3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Flaminio Squazzoni)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.