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R&D Subsidies, Spillovers, and Privatization in Mixed Markets

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Listed:
  • Maria José Gil-Moltó

    () (Department of Economics, University of Leicester, Leicester LE1 7RH, England, UK)

  • Joanna Poyago-Theotoky

    () (School of Economics and Finance, La Trobe University, Melbourne, Victoria 3086, Australia and Fellow of CRIEFF (University of St Andrews) and the Rimini Centre for Economic Analysis)

  • Vasileios Zikos

    () (Department of Economics, University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom and School of Economics, University of the Thai Chamber of Commerce, 126/1 Vibhavadee-Rangsit Road, Dindaeng, Bangkok, 10400, Thailand)

Abstract

We examine the use of subsidies to research and development (R&D) in a mixed and a private duopoly market. We show that the socially optimal R&D subsidy is increasing in the degree of spillovers, but it is lower in the private duopoly. The optimal R&D subsidy leads to an increase in total R&D and production; however, it does not lead to the equalization of per firm output and therefore to an efficient distribution of production costs. We also find that privatization of the public firm reduces R&D activity and welfare in the duopoly market. This result stands even when optimal R&D subsidies are provided.

Suggested Citation

  • Maria José Gil-Moltó & Joanna Poyago-Theotoky & Vasileios Zikos, 2011. "R&D Subsidies, Spillovers, and Privatization in Mixed Markets," Southern Economic Journal, Southern Economic Association, vol. 78(1), pages 233-255, July.
  • Handle: RePEc:sej:ancoec:v:78:1:y:2011:p:233-255
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    File URL: http://dx.doi.org/10.4284/0038-4038-78.1.233
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    JEL classification:

    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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