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Subsidizing technological innovations in the presence of R&D spillovers

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  • Helm, Carsten
  • Schöttner, Anja

Abstract

We analyze a situation where a principal wants to induce two firms to produce an output, e.g. electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output are always higher under the tournament, even though this scheme may lead to more innovation.

Suggested Citation

  • Helm, Carsten & Schöttner, Anja, 2005. "Subsidizing technological innovations in the presence of R&D spillovers," Darmstadt Discussion Papers in Economics 154, Darmstadt University of Technology, Department of Law and Economics.
  • Handle: RePEc:zbw:darddp:dar_36798
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    References listed on IDEAS

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    1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
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    8. Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003. "Instrument choice for environmental protection when technological innovation is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 523-545, May.
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    Citations

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    Cited by:

    1. Lehmann, Paul & Gawel, Erik, 2013. "Why should support schemes for renewable electricity complement the EU emissions trading scheme?," Energy Policy, Elsevier, vol. 52(C), pages 597-607.
    2. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    3. Reichenbach, Johanna & Requate, Till, 2012. "Subsidies for renewable energies in the presence of learning effects and market power," Resource and Energy Economics, Elsevier, vol. 34(2), pages 236-254.
    4. Andor, Mark & Voss, Achim, 2016. "Optimal renewable-energy promotion: Capacity subsidies vs. generation subsidies," Resource and Energy Economics, Elsevier, vol. 45(C), pages 144-158.
    5. repec:zbw:rwirep:0473 is not listed on IDEAS

    More about this item

    Keywords

    R&D spillovers; tournaments; subsidies; moral hazard;

    JEL classification:

    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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