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Subsidizing Public Inputs

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  • Neil Buckley
  • Stuart Mestelman
  • Mohamed Shehata

Abstract

Investment in research and development may (with some probability) lead to reductions in a firm’s production cost. If the production-cost savings associated with successful research and development is freely disseminated to other firms as soon as it is realized, too few resources may be allocated to this input. In such an environment, subsidies to the public input can lead to optimal input use. Four alternative subsidy instruments are considered in this paper. Two are incremental subsidies and the others are conventional level subsidies. One of the incremental subsidies and one of the level subsidies crudely capture characteristics of incentive mechanisms used in the United States and Canada. A laboratory implementation of these instruments generally confirms that incremental subsidies are inferior to level subsidies.

Suggested Citation

  • Neil Buckley & Stuart Mestelman & Mohamed Shehata, 1999. "Subsidizing Public Inputs," Department of Economics Working Papers 1999-11, McMaster University.
    • Handle: RePEc:mcm:deptwp:1999-11
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    References listed on IDEAS

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    Cited by:

    1. Neil Buckley & Kenneth Chan & James Chowhan & Stuart Mestelman & Mohamed Shehata, 2001. "Value Orientations, Income and Displacement Effects, and Voluntary Contributions," Experimental Economics, Springer;Economic Science Association, vol. 4(2), pages 183-195, October.
    2. repec:bla:ecinqu:v:51:y:2013:i:3:p:1715-1730 is not listed on IDEAS
    3. Smith, John, 2009. "The endogenous nature of social preferences," MPRA Paper 16599, University Library of Munich, Germany.
    4. Kiridaran Kanagaretnam & Stuart Mestelman & Khalid Nainar & Mohamed Shehata, 2006. "Trust, Reciprocity and the Roles of Sex, Value Orientation and Risk Attitudes in an Investment Game," Department of Economics Working Papers 2006-04, McMaster University.
    5. Donja Darai & Jens Grosser & Nadja Trhal, 2009. "Patents versus Subsidies � A Laboratory Experiment," SOI - Working Papers 0905, Socioeconomic Institute - University of Zurich.
    6. Kanagaretnam, Kiridaran & Mestelman, Stuart & Nainar, Khalid & Shehata, Mohamed, 2009. "The impact of social value orientation and risk attitudes on trust and reciprocity," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 368-380, June.
    7. John Smith, 2012. "The endogenous nature of the measurement of social preferences," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 11(2), pages 235-256, December.
    8. Mohamed I. Gomaa & Stuart Mestelman & Mohamed Shehata, 2014. "Social Distance, Reputation, Risk Attitude, Value Orientation and Equity in Economic Exchanges," Department of Economics Working Papers 2014-07, McMaster University.

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