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

  • Arqué-Castells, Pere

    ()

    (Universitat de Barcelona, and Institut d’Economia de Barcelona)

  • Mohnen, Pierre

    ()

    (UNU-MERIT / MGSOG Maastricht University)

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 characterize 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.

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File URL: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-029.pdf
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Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 029.

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Date of creation: 2012
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Handle: RePEc:unm:unumer:2012029
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  9. Blanes, J. Vicente & Busom, Isabel, 2004. "Who participates in R&D subsidy programs?: The case of Spanish manufacturing firms," Research Policy, Elsevier, vol. 33(10), pages 1459-1476, December.
  10. Birgit Aschhoff, 2010. "Who Gets the Money? The Dynamics of R&D Project Subsidies in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(5), pages 522-546, October.
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  15. Juan A. Máñez & María E. Rochina-Barrachina & Amparo Sanchis & Juan A. Sanchis, 2009. "THE ROLE OF SUNK COSTS IN THE DECISION TO INVEST IN R&D -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 712-735, December.
  16. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
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  20. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
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