IDEAS home Printed from https://ideas.repec.org/p/hhs/iuiwop/0186.html
   My bibliography  Save this paper

The “Incentive Subsidy” for Government Support of Private R&D

Author

Listed:
  • Fölster, Stefan

    (Research Institute of Industrial Economics (IFN))

Abstract

An "incentive subsidy" policy for subsidizing private R & D is proposed that can be more efficient, from a social point of view, than subsidy policies in common use such as a "normal" subsidy policy (fixed amount granted at project start), and conditional loans (loan is repaid only if project is profitable). The incentive subsidy compensates firms for any private loss and taxes away any gain in addition the firm receives a small fraction of the resulting invention' s social value. This mechanism comes close to being perfectly incentive compatible. The firm chooses itself whether it wants to be covered under the incentive subsidy. Generally, the firm's choice coincides with three social aims: First, a project that the firm would conduct in any case should not be subsidized. Second, a project should not be subsidized if its social value is negative. Third, the subsidy should provide an incentive to maximize a project's social value. Using a simulation over a range of hypothetical research projects it is shown that the efficiency of conditional loans and normal grants declines drastically as the government's information about project parameters becomes poorer, while the incentive subsidy performs consistently well.

Suggested Citation

  • Fölster, Stefan, 1987. "The “Incentive Subsidy” for Government Support of Private R&D," Working Paper Series 186, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0186
    as

    Download full text from publisher

    File URL: http://www.ifn.se/wfiles/wp/wp186.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Edwin Mansfield & John Rapoport & Anthony Romeo & Samuel Wagner & George Beardsley, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, Oxford University Press, vol. 91(2), pages 221-240.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Subsidies; R&D; conditional loans; efficiency; social value;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:iuiwop:0186. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson). General contact details of provider: http://edirc.repec.org/data/iuiiise.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.