Spillovers, subsidies, and second-best socially optimal R&D

• Type: Article in International Scientific Journal
• Date: 2019

Authors

Amir, R (Author) Other; Liu, H (Author) Other; Machowska, D (Author) Other; Joana Resende (Author) FEP

Journal

Title: Journal Of Public Economic Theory

ISSN: 1467-9779

Publisher: Wiley-Blackwell

Indexing

ISI Web of Knowledge - 28 Citations

Scopus - 26 Citations

Other information

Authenticus ID: P-00R-CCT

DOI: 10.1111/jpet.12411

Abstract (EN): This paper provides a thorough second-best welfare analysis of the standard two-stage model of R&D/product market competition with R&D spillovers. The planner's solution is compared to the standard non-cooperative scenario, the R&D cartel, and the cartelized research joint venture (or joint lab). We introduce the notion of a social joint lab, as a way for the planner to avoid wasteful R&D duplication. With no spillovers, the non-cooperative scenario, the joint lab, and the second-best planner's solutions coincide. However, with spillovers, all three scenarios yield R&D investments that fall short of the socially optimal level. To shed light on the role of the spillover level on these comparisons, we observe that the gaps between the market outcomes and the planners solutions widen as the spillover parameter increases. Finally, we establish that a social planner and a social joint lab solutions may be achieved starting from any of the three scenarios by offering firms respective suitably weighted quadratic R&D subsidization schedules. © 2019 Wiley Periodicals, Inc.

Language: English

Type (Professor's evaluation): Scientific