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The link between public support and private R&D effort: What is the optimal subsidy?

  • Néstor Duch-Brown

    ()

    (Department of Public Economy, Political Economy and Spanish Economy and Barcelona Institute of Economics (IEB), University of Barcelona. Av Diagonal 690. 08034 Barcelona (Spain))

  • José García-Quevedo

    ()

    (Department of Public Economy, Political Economy and Spanish Economy and Barcelona Institute of Economics (IEB), University of Barcelona. Av Diagonal 690. 08034 Barcelona (Spain))

  • Daniel Montolio

    ()

    (Department of Public Economy, Political Economy and Spanish Economy and Barcelona Institute of Economics (IEB), University of Barcelona. Av Diagonal 690. 08034 Barcelona (Spain))

The effectiveness of R&D subsidies can vary substantially depending on their characteristics. Specifically, the amount and intensity of such subsidies are crucial issues in the design of public schemes supporting private R&D. Public agencies determine the intensities of R&D subsidies for firms in line with their eligibility criteria, although assessing the effects of R&D projects accurately is far from straightforward. The main aim of this paper is to examine whether there is an optimal intensity for R&D subsidies through an analysis of their impact on private R&D effort. We examine the decisions of a public agency to grant subsidies taking into account not only the characteristics of the firms but also, as few previous studies have done to date, those of the R&D projects. In determining the optimal subsidy we use both parametric and nonparametric techniques. The results show a non-linear relationship between the percentage of subsidy received and the firms’ R&D effort. These results have implications for technology policy, particularly for the design of R&D subsidies that ensure enhanced effectiveness.

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File URL: http://www.pcb.ub.edu/xreap/aplicacio/fitxers/XREAP2011-09.pdf
File Function: First version, 2011
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File URL: http://www.pcb.ub.edu/xreap/aplicacio/fitxers/XREAP2011-09.pdf
File Function: Revised version, 2011
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Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2011-09.

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Length: 45 pages
Date of creation: Jun 2011
Date of revision: Jun 2011
Handle: RePEc:xrp:wpaper:xreap2011-09
Contact details of provider: Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
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Web page: http://www.pcb.ub.edu/xreap
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  1. Wolfgang Hardle & Oliver Linton, 1994. "Applied Nonparametric Methods," Cowles Foundation Discussion Papers 1069, Cowles Foundation for Research in Economics, Yale University.
  2. Xulia González & Jordi Jaumandreu & Consuelo Pazó, 2001. "Barriers to innovation and subsidy e¤ectiveness," Working Papers 0112, Universidade de Vigo, Departamento de Economía Aplicada.
  3. Chang-Yang Lee, 2002. "A simple model of R&D: An extension of the Dorfman-Steiner theorem," Applied Economics Letters, Taylor & Francis Journals, vol. 9(7), pages 449-452.
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