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Evaluating innovation policy : a structural treatment effect model of R&D subsidies

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  • Takalo, Tuomas
  • Tanayama, Tanja
  • Toivanen, Otto

Abstract

This paper studies the welfare effects of R&D subsidies. We develop a model of continuous optimal treatment with outcome heterogeneity where the treatment outcome depends on applicant investment. The model takes into account heterogeneous application costs and identifies the treatment effect on the public agency running the programme. Under the assumption of a welfare-maximizing agency, we identify general equilibrium treatment effects. Applyiing our model to R&D project-level data we find substantial treatment effect heterogeneity. Agency-specific treatment effects are smaller than private treatment effects. We find that the rate of return on subsidies for the agency is 30-50%. Keywords: applications, effort, investment, R&D, selection, subsidies, treatment programme, treatment effects, welfare JEL classification numbers: 038, 031, L53, C31

Suggested Citation

  • Takalo, Tuomas & Tanayama, Tanja & Toivanen, Otto, 2008. "Evaluating innovation policy : a structural treatment effect model of R&D subsidies," Research Discussion Papers 7/2008, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2008_007
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    Cited by:

    1. Criscuolo, Chiara & Martin, Ralf & Overman, Henry & Van Reenen, John, 2012. "The Causal Effects of an Industrial Policy," IZA Discussion Papers 6323, Institute of Labor Economics (IZA).
    2. Aschhoff Birgit, 2010. "Who Gets the Money?: The Dynamics of R&D Project Subsidies in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(5), pages 522-546, October.
    3. Tuomas Takalo, 2012. "Rationales and Instruments for Public Innovation Policies," Journal of Reviews on Global Economics, Lifescience Global, vol. 1, pages 157-167.
    4. Dezhina, Irina & Simachev, Yuri, 2012. "Partnering universities and companies in Russia: effects of new government initiative," MPRA Paper 43622, University Library of Munich, Germany.
    5. Cristian Mardones & Annabella Zapata, 2019. "Determinants of public funding for innovation in Chilean firms," Contaduría y Administración, Accounting and Management, vol. 64(1), pages 41-42, Enero-Mar.
    6. Segarra Blasco, Agustí, 1958- & Teruel, Mercedes & Bové Sans, Miquel Àngel, 2014. "A territorial approach to R&D subsidies: Empirical evidence for Catalonian firms," Working Papers 2072/242275, Universitat Rovira i Virgili, Department of Economics.
    7. Elena Huergo & Mayte Trenado, 2010. "The Application for and the Awarding of Low-Interest Credits to Finance R&D Projects," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(3), pages 237-259, November.
    8. Hud, Martin & Hussinger, Katrin, 2015. "The impact of R&D subsidies during the crisis," Research Policy, Elsevier, vol. 44(10), pages 1844-1855.
    9. Dezhina, I. & Simachev, Yu., 2013. "Matching Grants for Stimulating Partnerships between Companies and Universities in Innovation Area: Initial Effects in Russia," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 99-122.
    10. Giovanni Cerulli, 2010. "Modelling and Measuring the Effect of Public Subsidies on Business R&D: A Critical Review of the Econometric Literature," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 421-449, September.
    11. Luca Grilli & Samuele Murtinu, 2011. "Econometric Evaluation of Public Policies for Science and Innovation: A Brief Guide to Practice," Chapters, in: Massimo G. Colombo & Luca Grilli & Lucia Piscitello & Cristina Rossi-Lamastra (ed.), Science and Innovation Policy for the New Knowledge Economy, chapter 3, Edward Elgar Publishing.
    12. Néstor Duch-Brown & José García-Quevedo & Daniel Montolio, 2011. "The link between public support and private R&D effort: What is the optimal subsidy?," Working Papers XREAP2011-09, Xarxa de Referència en Economia Aplicada (XREAP), revised Jun 2011.
    13. Dirk Czarnitzki & Katrin Hussinger, 2018. "Input and output additionality of R&D subsidies," Applied Economics, Taylor & Francis Journals, vol. 50(12), pages 1324-1341, March.
    14. Correa, Paulo & Andres, Luis & Borja-Vega, Christian, 2013. "The impact of government support on firm R&D investments : a meta-analysis," Policy Research Working Paper Series 6532, The World Bank.

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    More about this item

    Keywords

    applications; effort; investment; r&d; selection; subsidies; treatment programme; treatment effects; welfare jel classification numbers: 038; 031; l53; c31;
    All these keywords.

    JEL classification:

    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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