A Politico-Economic Analysis of the European Union’s R&D Policy
This paper provides a politico-economic analysis of the European Union’s (EU) R&D policy. It develops an open-economy R&D-growth model characterized by two parameters that capture respectively the degree of technology spillover and the effectiveness of lobbying. In a non-cooperative equilibrium, each country chooses the level of R&D subsidy independently and fails to internalize technology spillover. Consequently, R&D subsidy is underprovided. In an economic union, the central government internalizes technology spillover but is vulnerable to lobbying by politicians from each country, who attempt to free-ride on the central government budget. Consequently, R&D subsidy is overprovided; however, this overprovision becomes less severe as the degree of technology spillover increases. Therefore, technology spillover has a surprisingly positive effect on welfare in an economic union. As for the effect on relative welfare, there is a cutoff value for the degree of technology spillover such that if and only if spillover is above this threshold, then an economic union dominates independent countries in welfare. Furthermore, this threshold is an increasing function in the effectiveness of lobbying. This paper also considers the possibility that the EU faces a binding budget ceiling. In this case, lobbying on R&D subsidy exerts a distortionary effect on revenue allocation, and hence a welfare loss continues to exist.
|Date of creation:||Jul 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aghion, P. & Howitt, P., 1989.
"A Model Of Growth Through Creative Destruction,"
527, Massachusetts Institute of Technology (MIT), Department of Economics.
- Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
- Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
- Bradbury, John Charles & Crain, W. Mark, 2001. "Legislative organization and government spending: cross-country evidence," Journal of Public Economics, Elsevier, vol. 82(3), pages 309-325, December.
- Jonathan Eaton & Eva Gutierrez & Samuel Kortum, 1998.
"European technology policy,"
CEPR;CES;MSH, vol. 13(27), pages 403-438, October.
- Jonathan Eaton & Eva Gutierrez & Samuel Kortum, 1998. "European Technology Policy," Boston University - Institute for Economic Development 87, Boston University, Institute for Economic Development.
- Jonathan Eaton & Eva Gutierrez & Samuel Kortum, 1998. "European Technology Policy," NBER Working Papers 6827, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
- Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
- Chu, Angus C., 2007.
"Special Interest Politics and Intellectual Property Rights: An Economic Analysis of Strengthening Patent Protection in the Pharmaceutical Industry,"
4349, University Library of Munich, Germany.
- Angus C. Chu, 2008. "Special Interest Politics And Intellectual Property Rights: An Economic Analysis Of Strengthening Patent Protection In The Pharmaceutical Industry," Economics and Politics, Wiley Blackwell, vol. 20(2), pages 185-215, 06.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10329. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.