| By: |
Takalo, Tuomas (Bank of Finland and KU Leuven);
Tanayama , Tanja (National Audit Office of Finland);
Toivanen , Otto (KU Leuven & CEPR) |
| 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 costs 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 large
spillovers. Our results suggest that the relationship between additionality
and welfare may not be straightforward. |
| Keywords: |
R&D; entrepreneurial finance; R&D subsidies; innovation policy |
| JEL: |
G28 H25 L32 O38 |
| Date: |
2013–02–13 |
| URL: |
http://d.repec.org/n?u=RePEc:hhs:bofrdp:2013_002&r=cfn |