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Subsidiar innovación y producción


  • Gamal Atallah

    ( Departamento de Economía, Universidad de Ottawa. Canadá)


This paper studies the interaction between production subsidies and innovation subsidies. Wedevelop a model which allows us to calculate the socially optimal subsidies (and how they varywith changes in the economic environment), and to understand how firms react to each type ofsubsidy. In a three-stage game, the government chooses production and innovation subsidies inthe first stage to maximize welfare in the presence of a shadow cost of public funds; two firmsinvest in cost-reducing R&D in the second stage; and the two firms compete in quantities in thelast stage. we find that production subsidies crowd out innovation. On the other hand, providinga production subsidy reduces the cost of the innovation subsidy, and vice versa. The optimalproduction subsidy either increases monotonically with spillovers, or is U-shaped with respect tospillovers, depending on exogenous parameters. The innovation subsidy is increasing in spillovers. The production subsidy is higher for very low spillovers, while the innovation subsidy is higher formoderate/high spillovers. In equilibrium, because of the innovation subsidy, R&D increases withspillovers, and so does welfare. We also consider the case of a financially constrained government,as well as the case of a uniform subsidy to production and innovation costs.

Suggested Citation

  • Gamal Atallah, 2019. "Subsidiar innovación y producción," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 42(84), pages 9-35.
  • Handle: RePEc:pcp:pucrev:y:2019:i:84:p:9-35

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    References listed on IDEAS

    1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
    2. Lee, Sang-Ho & Muminov, Timur K. & Tomaru, Yoshihiro, 2017. "Partial Privatization And Subsidization In A Mixed Duopoly: R&D Versus Output Subsidies," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(2), pages 163-177, December.
    3. Gamal Atallah, 2014. "Conditional R&D subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(2), pages 179-214, March.
    4. Leahy, Dermot & Neary, J Peter, 1997. "Public Policy towards R&D in Oligopolistic Industries," American Economic Review, American Economic Association, vol. 87(4), pages 642-662, September.
    5. Christopher A. Laincz & Joshua D. Hall, 2012. "Optimal R&D Subsidies with Heterogeneous Firms in a Dynamic Setting," DEGIT Conference Papers c017_040, DEGIT, Dynamics, Economic Growth, and International Trade.
    6. José Ángel Zúñiga-Vicente & César Alonso-Borrego & Francisco J. Forcadell & José I. Galán, 2014. "Assessing The Effect Of Public Subsidies On Firm R&D Investment: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 36-67, February.
    7. Sajal Lahiri & Yoshiyasu Ono, 1999. "R&D Subsidies Under Asymmetric Duopoly: A Note," The Japanese Economic Review, Japanese Economic Association, vol. 50(1), pages 104-111, March.
    8. Anna Stepanova, 2009. "R&D Spillovers, Concentration and Market Performance," Studies in Economics 0901, School of Economics, University of Kent.
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    10. Dominique Guellec, 2001. "Les politiques de soutien à l'innovation technologique à l'aune de la théorie économique," Economie & Prévision, La Documentation Française, vol. 0(4), pages 95-105.
    11. Hall, Joshua & Laincz, Christopher, 2012. "Optimal R&D Subsidies with Heterogeneous Firms in a Dynamic Setting," School of Economics Working Paper Series 2012-13, LeBow College of Business, Drexel University.
    12. Emmanuel Petrakis & Joanna Poyago‐Theotoky, 2002. "R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution," Australian Economic Papers, Wiley Blackwell, vol. 41(1), pages 37-52, March.
    13. Parish, Ross M. & McLaren, Keith Robert, 1982. "Relative Cost-Effectiveness Of Input And Output Subsidies," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 26(1), pages 1-13, April.
    14. Kesavayuth, Dusanee & Zikos, Vasileios, 2013. "R&D versus output subsidies in mixed markets," Economics Letters, Elsevier, vol. 118(2), pages 293-296.
    15. Dominique Guellec, 2001. "Les politiques de soutien à l'innovation technologique à l'aune de la théorie économique," Économie et Prévision, Programme National Persée, vol. 150(4), pages 95-105.
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    More about this item


    Production subsidy; Input subsidy; Output subsidy; Innovation subsidy; R&D subsidy; R&D; R&D spillovers; Process innovation.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy


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