Market failures and the additionality effects of public support to private R&D: Theory and empirical implications.

Tuomas Takalo, Tanja Tanayama, Otto Toivanen

Research output: Contribution to journalArticleScientificpeer-review

27 Citations (Scopus)

Abstract

Abstract: We extend the theoretical basis of the empirical literature on the effects of R&D subsidies by providing an estimable model of strategic interaction among subsidy applicants, and public and private sector R&D financiers. Our model incorporates fixed R&D cost and a cost of external finance. We derive the optimal support rule. At the intensive (extensive) margin the costs of external funding reduce (increase) the optimal subsidy rate. We also establish necessary and sufficient conditions for the existence of additionality. It turns out that additionality at the intensive margin is less likely with higher spillovers. Our results suggest that the relationship between additionality and welfare may not be straightforward.
Original languageEnglish
Peer-reviewed scientific journalInternational Journal of Industrial Organization
Volume31
Issue number5
Pages (from-to)634-642
Number of pages9
ISSN0167-7187
DOIs
Publication statusPublished - 01.09.2013
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Market failure
  • Empirical research
  • Research & development
  • Strategic planning
  • Subsidies
  • Welfare economics
  • Additionality
  • Financing of innovations
  • G38
  • H25
  • R&D investments
  • Welfare

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