R&D and subsidy policy with imperfect project classification

Thomas Gehrig, Rune Stenbacka*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

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 languageEnglish
Article number110966
Peer-reviewed scientific journalEconomics Letters
Volume222
ISSN0165-1765
DOIs
Publication statusPublished - 01.2023
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • iImperfect screening
  • R&D
  • subsidy policy

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