nep-cfn New Economics Papers
on Corporate Finance
Issue of 2013‒03‒09
one paper chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Market failures and the additionality effects of public support to private R&D: Theory and empirical implications By Takalo, Tuomas; Tanayama , Tanja; Toivanen , Otto

  1. 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

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