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Subsidizing Technological Innovations in the Presence of R&D Spillovers

  • Helm, Carsten
  • Schöttner, Anja

We analyze a situation where a principal wants to induce firms to produce an output, e.g. electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production costs of the output. Parts of these investments spills over and also reduce production costs of the other firm. Comparing the general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output are always higher under the tournament, even though this scheme may lead to more innovation.

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Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 36798.

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Date of creation: Nov 2005
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Publication status: Published in Darmstadt Discussion Papers in Economics . 154 (2005-11)
Handle: RePEc:dar:ddpeco:36798
Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/36798/
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  1. Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003. "Instrument choice for environmental protection when technological innovation is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 523-545, May.
  2. AMIRÂ , Rabah, 1995. "Continuous Stochastic Games of Capital Accumulation with Convex Transition," CORE Discussion Papers 1995009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jeroen Hinloopen, 2003. "R&D Efficiency Gains Due to Cooperation," Journal of Economics, Springer, vol. 80(2), pages 107-125, October.
  4. Amir, Rabah, 2000. "Modelling imperfectly appropriable R&D via spillovers," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1013-1032, October.
  5. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  6. Tsur, Yacov & Zemel, Amos, 2002. "The Regulation of Environmental Innovations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 242-260, September.
  7. Biglaiser, Gary & Horowitz, John K, 1995. "Pollution Regulation and Incentives for Pollution-Control Research," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(4), pages 663-84, Winter.
  8. Fullerton, Richard, et al, 1999. "An Experimental Investigation of Research Tournaments," Economic Inquiry, Western Economic Association International, vol. 37(4), pages 624-36, October.
  9. Manne, Alan & Richels, Richard, 2004. "The impact of learning-by-doing on the timing and costs of CO2 abatement," Energy Economics, Elsevier, vol. 26(4), pages 603-619, July.
  10. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
  11. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
  12. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-90, September.
  13. Miyagiwa, Kaz & Ohno, Yuka, 2002. "Uncertainty, spillovers, and cooperative R&D," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 855-876, June.
  14. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
  15. Thomas P. Gehrig, 2004. "Organizational Form and Information Acquisition," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(1), pages 39-, March.
  16. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December.
  17. Jeroen Hinloopen, 1997. "Subsidizing cooperative and noncooperative R&D in duopoly with spillovers," Journal of Economics, Springer, vol. 66(2), pages 151-175, June.
  18. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
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