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Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies

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  • Tor Jakob Klette
  • Jarle Møen
  • Zvi Griliches

Abstract

A number of market failures have been associated with R&D investments and significant amounts of public money have been spent on programs to stimulate innovative activities. In this paper, we review some recent microeconomic studies evaluating effects of government sponsored commercial R&D. We pay particular attention to the conceptual problems involved. Neither the firms receiving support, nor those not applying, constitute random samples. Furthermore, those not receiving support may be affected by the programs due to spillover effects which often are a main justification for R&D subsidies. Constructing a valid control group under these circumstances is challenging, and we relate our discussion to recent advances in econometric methods for evaluation studies based on non-experimental data. We also discuss some analytical questions that need to be addressed in order to assess whether R&D support schemes can be justified. For instance, what are the implication of firms' R&D investments being complementary to each other, and to what extent are potential R&D spillovers internalized in the market?

Suggested Citation

  • Tor Jakob Klette & Jarle Møen & Zvi Griliches, 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies," NBER Working Papers 6947, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6947
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    Cited by:

    1. Karl Aiginger & Michael Landesmann, 2002. "Competitive Economic Performance: The European View," WIFO Working Papers 179, WIFO.
    2. James D. Adams & Eric P. Chiang & Jeffrey L. Jensen, 2003. "The Influence of Federal Laboratory R&D on Industrial Research," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1003-1020, November.
    3. Czarnitzki, Dirk & Licht, Georg, 2004. "Die Rolle der Innovationsförderung im Aufholprozess Ostdeutschlands," ZEW Discussion Papers 04-68, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Venetoklis, Takis & Kangasharju, Aki, 2002. "Business Subsidies and Employment of Firms: Overall Evaluation and Regional Extension," Discussion Papers 268, VATT Institute for Economic Research.
    5. Breschi, Stefano & Lissoni, Francesco, 2001. "Knowledge Spillovers and Local Innovation Systems: A Critical Survey," Industrial and Corporate Change, Oxford University Press, vol. 10(4), pages 975-1005, December.
    6. Hyytinen, Ari & Toivanen, Otto, 2005. "Do financial constraints hold back innovation and growth?: Evidence on the role of public policy," Research Policy, Elsevier, vol. 34(9), pages 1385-1403, November.
    7. Sanghoon Ahn, 2004. "Global Competition, Technology Spillovers and Firm Dynamics:," Econometric Society 2004 Far Eastern Meetings 793, Econometric Society.
    8. Tomas Philipson, 1999. "External Treatment Effects and Program Implementation Bias," Working Papers 9929, Harris School of Public Policy Studies, University of Chicago.
    9. Jacob, Brian A. & Lefgren, Lars, 2011. "The impact of research grant funding on scientific productivity," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1168-1177, October.
    10. José Miguel Benavente H., 2005. "Technological Innovation in Chile: Where we are and what can be Done," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 8(1), pages 53-77, April.
    11. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages 73-84, February.
    12. Raffaello Bronzini & Guido De Blasio, 2005. "Evaluating the impact of investment incentives - the case of the Italian Law 488," ERSA conference papers ersa05p649, European Regional Science Association.
    13. Mario Sanginés & Joan Oriol Prats Cabrera & Carlos Pimenta & Gustavo García Osío & Juan Pablo Martínez Guzman & Mario Marcel & Pedro Farias & Gustavo Crespi & Martin D. Chrisney & Ana Corbacho, 2013. "The Fiscal Institutions of Tomorrow," IDB Publications (Books), Inter-American Development Bank, number 82298 edited by Ana Corbacho, February.
    14. Kangasharju, Aki & Venetoklis, Takis, 2002. "Effect of business subsidies on labour demand: overall evaluation with regional extensions," ERSA conference papers ersa02p172, European Regional Science Association.
    15. repec:idb:idbbks:460 is not listed on IDEAS
    16. Eero Lehto, 2008. "On The Impacts Of R&D Support And On Specialization In The Production Of New Knowledge," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(3), pages 227-240.
    17. Czarnitzki, Dirk & Fier, Andreas, 2002. "Do Innovation Subsidies Crowd Out Private Investment? Evidence from the German Service Sector," ZEW Discussion Papers 02-04, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    18. Joshua Gans & Scott Stern, 2003. "When does funding research by smaller firms bear fruit?: Evidence from the SBIR program," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(4), pages 361-384.
    19. Tuomas Takalo & Tanja Tanayama & Otto Toivanen, 2005. "Selection Or Self-Rejection? Applications Into A Treatment," Industrial Organization 0510002, EconWPA.
    20. Czarnitzki, Dirk & Fier, Andreas, 2001. "Do R&D subsidies matter? Evidence for the German service sector," ZEW Discussion Papers 01-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    21. Elisa Barbieri & Roberto Iorio & Giuseppe Lubrano Lavadera, 2010. "Incentivi alla ricerca e sviluppo in Italia: una indagine sugli effetti della Legge 46/82," Working Papers 1003, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    22. Lee G. Branstetter & Mariko Sakakibara, 2000. "When Do Research Consortia Work Well and Why? Evidence from Japanese Panel Data," NBER Working Papers 7972, National Bureau of Economic Research, Inc.
    23. Bronzini, Raffaello & de Blasio, Guido, 2006. "Evaluating the impact of investment incentives: The case of Italy's Law 488/1992," Journal of Urban Economics, Elsevier, vol. 60(2), pages 327-349, September.
    24. Paul Stoneman, 1999. "Government spending on research and development in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 20(3), pages 223-259, September.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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