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The effect of project funding on innovative performance: An agent-based simulation model

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  • Bogner, Kristina
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    Analyzing the effect of Direct Project Funding (DPF) on innovative performance of economic agents is a major challenge for innovation economists and policy makers who must give valid policy recommendations and decide on the allocation of financial resources. An approach that becomes more and more important is the use of agent-based modeling in analyzing innovative performance of market players. In this paper, an agentbased percolation model is used to investigate the effects of project funding on innovative performance in terms of the maximum technological frontier that can be reached as well as in terms of the number of innovations generated by firms. The model results show that firms which participate in subsidized projects outperform firms that do not participate in subsidized projects, especially in increasingly complex technological fields. However, the worse performance of firms that do not participate in subsidized projects can be offset by an increase in the firms' financial resources. Hence, the model indicates, the effect of project funding is a purely financial one and might even have negative effects on innovative performance. This is the case if, for instance, a high number of funded research projects disturbs firms' paths through the technology space. Following the results of the model, project funding is most effective and important in increasingly complex technology spaces and less effective and important in less complex technology spaces. Moreover, the model results show, other financial resources as venture capital can substitute for direct project funding.

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    Paper provided by University of Hohenheim, Faculty of Business, Economics and Social Sciences in its series Hohenheim Discussion Papers in Business, Economics and Social Sciences with number 10-2015.

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    Date of creation: 2015
    Handle: RePEc:zbw:hohdps:102015
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    1. G. Fagiolo & C. Birchenhall & P. Windrum, 2007. "Empirical Validation in Agent-based Models: Introduction to the Special Issue," Computational Economics, Springer;Society for Computational Economics, vol. 30(3), pages 189-194, October.
    2. Silverberg, Gerald & Verspagen, Bart, 2005. "A percolation model of innovation in complex technology spaces," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 225-244, January.
    3. Kluger, Brian D. & McBride, Mark E., 2011. "Intraday trading patterns in an intelligent autonomous agent-based stock market," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 226-245, August.
    4. Dirk Czarnitzki & Bernd Ebersberger & Andreas Fier, 2007. "The relationship between R&D collaboration, subsidies and R&D performance: Empirical evidence from Finland and Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1347-1366.
    5. Richard Arena & Agnès Festré & Nathalie Lazaric, 2012. "Handbook of Knowledge and Economics," Post-Print halshs-00721485, HAL.
    6. Aschhoff, Birgit & Sofka, Wolfgang, 2009. "Innovation on demand--Can public procurement drive market success of innovations?," Research Policy, Elsevier, vol. 38(8), pages 1235-1247, October.
    7. Czarnitzki, Dirk & Hussinger, Katrin, 2004. "The Link Between R&D Subsidies, R&D Spending and Technological Performance," ZEW Discussion Papers 04-56, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Colombo, Massimo G. & Grilli, Luca & Murtinu, Samuele, 2011. "R&D subsidies and the performance of high-tech start-ups," Economics Letters, Elsevier, vol. 112(1), pages 97-99, July.
    9. Paolo Zeppini & Koen Frenken & Luis R. Izquierdo, 2013. "Innovation diffusion in networks: the microeconomics of percolation," Working Papers 13-02, Eindhoven Center for Innovation Studies, revised Feb 2013.
    10. Popescul, Daniela, 2012. "Knowledge flows percolation model – a new model for the relation between knowledge and innovation," MPRA Paper 51746, University Library of Munich, Germany.
    11. 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.
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