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^*

^*Motsvarande författare för detta arbete

Nationalekonomi, Helsingfors

Forskningsoutput: Tidskriftsbidrag › Artikel › Vetenskaplig › Peer review

Sammanfattning

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.

Originalspråk	Engelska
Artikelnummer	110966
Referentgranskad vetenskaplig tidskrift	Economics Letters
Volym	222
ISSN	0165-1765
DOI	https://doi.org/10.1016/j.econlet.2022.110966
Status	Publicerad - 01.2023
MoE-publikationstyp	A1 Originalartikel i en vetenskaplig tidskrift

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511 Nationalekonomi

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10.1016/j.econlet.2022.110966Licens: CC BY

1-s2.0-S0165176522004402-mainPublicerad version, 275 KBLicens: CC BY

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AB - 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.

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R&D and subsidy policy with imperfect project classification

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