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Subsidizing Technological Innovations in the Presence of R&D Spillovers

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  • Helm, Carsten
  • Schöttner, Anja

Abstract

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.

Suggested Citation

  • Helm, Carsten & Schöttner, Anja, 2009. "Subsidizing Technological Innovations in the Presence of R&D Spillovers," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77403, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:77403
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/77403/
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    JEL classification:

    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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