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Sunk costs, extensive R&D subsidies and permanent inducement effects

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  • Pere Arqué-Castells

    () (Universitat Autònoma de Barcelona & IEB)

  • Pierre Mohnen

    () (University of Maastricht)

Abstract

We study whether there is scope for using subsidies to smooth out barriers to R&D performance and expand the share of R&D firms in Spain. We consider a dynamic model with sunk entry costs in which firms’ optimal participation strategy is defined in terms of two subsidy thresholds that characterise entry and continuation. We compute the subsidy thresholds from the estimates of a dynamic panel data type-2 tobit model for an unbalanced panel of about 2,000 Spanish manufacturing firms. The results suggest that “extensive” subsidies are a feasible and efficient tool for expanding the share of R&D firms.

Suggested Citation

  • Pere Arqué-Castells & Pierre Mohnen, 2012. "Sunk costs, extensive R&D subsidies and permanent inducement effects," Working Papers 2012/13, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:2012/5/doc2012-13
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    References listed on IDEAS

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    Cited by:

    1. Koehler, Mila & Peters, Bettina, 2017. "Subsidized and non-subsidized R&D projects: Do they differ?," ZEW Discussion Papers 17-042, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. repec:eee:respol:v:47:y:2018:i:8:p:1437-1447 is not listed on IDEAS
    3. Isabel Busom & Beatriz Corchuelo & Ester Martínez-Ros, 2017. "Participation inertia in R&D tax incentive and subsidy programs," Small Business Economics, Springer, vol. 48(1), pages 153-177, January.
    4. repec:kap:sbusec:v:50:y:2018:i:1:d:10.1007_s11187-017-9877-3 is not listed on IDEAS
    5. repec:eee:wdevel:v:99:y:2017:i:c:p:75-94 is not listed on IDEAS
    6. Huergo, Elena & Trenado, Mayte & Ubierna, Andrés, 2016. "The impact of public support on firm propensity to engage in R&D: Spanish experience," Technological Forecasting and Social Change, Elsevier, vol. 113(PB), pages 206-219.
    7. André Spithoven, Belgian Science Policy Office and Ghent University & Michel Dumont & Peter Teirlinck, Belgian Science Policy Office and KU Leuven, 2014. "Working Paper 08-14 - Public support for R&D and the educational mix of R&D employees," Working Papers 1408, Federal Planning Bureau, Belgium.
    8. repec:oup:oxecpp:v:69:y:2017:i:4:p:1032-1053. is not listed on IDEAS
    9. repec:eee:respol:v:46:y:2017:i:10:p:1851-1862 is not listed on IDEAS

    More about this item

    Keywords

    R&D; persistence; subsidies; dynamic models;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • D2 - Microeconomics - - Production and Organizations

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