R&D and subsidy policy with imperfect project classification

Thomas Gehrig; Rune Stenbacka

doi:10.1016/j.econlet.2022.110966

R&D and subsidy policy with imperfect project classification

Thomas Gehrig, Rune Stenbacka^*

^*Corresponding author for this work

Economics, Helsinki

Research output: Contribution to journal › Article › Scientific › peer-review

Abstract

We characterize optimal subsidies for firms facing limitations in their ability to correctly classify risky R&D projects. We demonstrate that the optimal subsidy is an increasing function of firms’ ability to reduce type-I errors in accepting projects with a success potential, and a decreasing function in their type-II error of adopting projects with no success potential. Moreover, the optimal subsidy is decreasing in the informational advantage regarding the assessment of project viability of private firms relative to the government.

Original language	English
Article number	110966
Peer-reviewed scientific journal	Economics Letters
Volume	222
ISSN	0165-1765
DOIs	https://doi.org/10.1016/j.econlet.2022.110966
Publication status	Published - 01.2023
MoE publication type	A1 Journal article - refereed

Keywords

511 Economics
iImperfect screening
R&D
subsidy policy

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10.1016/j.econlet.2022.110966Licence: CC BY

1-s2.0-S0165176522004402-mainFinal published version, 275 KBLicence: CC BY

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R&D and subsidy policy with imperfect project classification

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