IDEAS home Printed from
   My bibliography  Save this paper

The Efficiency of Innovation Subsidies


  • Fölster, Stefan

    (Research Institute of Industrial Economics (IFN))


State subsidies to R & D or innovative investments in firms are organized in many different ways. Examples from the plethora of extant subsidy instruments are tax incentives, grants to researchers, project grants, loans, conditional loans, and grants with royalty rights. Very little is currently known about the effectiveness of these subsidy forms. In this paper we compare the effectiveness of eight forms of subsidy for R & D projects. The comparison is based on a survey of Swedish R & D managers, including detailed information about 214 research projects or project proposals. In a first set of results we report managers' general judgments about the effectiveness of different subsidy forms. Second, R & D managers were asked to judge how each subsidy instrument would affect the firm's decision about the size of each project and whether to conduct it. This allows an estimate of how such additional R & D each policy might induce. There are two main conclusions. First, general subsidies do not seem to induce much additional R & D for a given amount of subsidy. Second, among specific subsidies so called "stock option grants" seem to induce most R & D per subsidy krona. These are grants that give the state a right to recoup some of its funding by exercising a stock option if the firm's value rises rapidly. The main reason that the stock option grant performs well is not that the state can recoup some of its costs but rather that firms do not accept this subsidy for much of the research that they would have conducted even without subsidy.

Suggested Citation

  • Fölster, Stefan, 1989. "The Efficiency of Innovation Subsidies," Working Paper Series 227, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0227

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Burt S. Barnow, 1987. "The Impact of CETA Programs on Earnings: A Review of the Literature," Journal of Human Resources, University of Wisconsin Press, vol. 22(2), pages 157-193.
    2. James J. Heckman & V. Joseph Hotz & Marcelo Dabos, 1987. "Do We Need Experimental Data To Evaluate the Impact of Manpower Training On Earnings?," Evaluation Review, , vol. 11(4), pages 395-427, August.
    3. David M. Blau & Philip K. Robins, 1987. "Training Programs and Wages: A General Equilibrium Analysis of the Effects of Program Size," Journal of Human Resources, University of Wisconsin Press, vol. 22(1), pages 113-125.
    4. Heckman, James J. & Robb, Richard Jr., 1985. "Alternative methods for evaluating the impact of interventions : An overview," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 239-267.
    Full references (including those not matched with items on IDEAS)

    More about this item


    R&D subsidies; optimal subsidy form; expectations; innovation;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D


    Access and download statistics


    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:0227. 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: .

    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.

    We have no references for this item. You can help adding them by using 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.