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Conditional R&D subsidies

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  • Gamal Atallah

Abstract

This paper introduces a new type of R&D subsidy, which is conditional on the success of the R&D project. In a three-stage model, the government chooses a subsidy(ies), a monopolist chooses R&D effort which determines the size or the probability of success of the R&D project, and the firm chooses output. It is found that conditional subsidies can yield the same level of innovation and welfare as unconditional subsidies. However, when the probability of success is sufficiently low (be it endogenous or exogenous), conditional subsidies yield suboptimal levels of innovation and welfare. When the firm chooses the probability of success, conditional subsidies reduce the expected cost of the subsidy to the government as well as profits. The simultaneous use of conditional and unconditional subsidies is considered. Finally, subsidies conditional on failure are studied. It is found that they yield the same level of innovation and welfare as unconditional subsidies but increase expected subsidy costs and profits.

Suggested Citation

  • Gamal Atallah, 2014. "Conditional R&D subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(2), pages 179-214, March.
  • Handle: RePEc:taf:ecinnt:v:23:y:2014:i:2:p:179-214
    DOI: 10.1080/10438599.2013.827904
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    References listed on IDEAS

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    Cited by:

    1. Marie-Laure Cabon-Dhersin & Romain Gibert, 2019. "R&D cooperation, proximity and distribution of public funding between public and private research sectors," Working Papers hal-02006489, HAL.
    2. Marie-Laure Cabon-Dhersin & Romain Gibert, 2017. "Cooperation or non-cooperation in R&D: how should research be funded? ," Working Papers hal-01587014, HAL.
    3. Marie-Laure Cabon-Dhersin & Romain Gibert, 2018. "Cooperation or non-cooperation in R&D: how should research be funded?," Post-Print hal-02006515, HAL.

    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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