Are R&D subsidies provided optimally? Evidence from a simulated agency-firm stochastic dynamic game

Giovanni Cerulli

CERIS Working Paper from CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY

Abstract: By means of a simulated funding-agency/supported-firm stochastic dynamic game, this paper firstly shows that not only the level of R&D performed by firms is underprovided (as maintained by traditional literature on the subject), but also the level of the subsidy provided by the funding (public) agency (used to correct exactly for the corporate R&D shortage). This event is due to externalities generated by the agency-firm strategic relationship. Two versions of the model are simulated and compared: one assuming rival behaviors between companies and agency, and one associated to the Social-planner (or cooperative) strategy. Secondly, the paper looks at what “welfare” implications are associated to different degree of funding effect’s persistency. Three main conclusions are drawn: (i) the relative quota of subsidy to R&D is undersized in the rival compared to the Social-planner model; (2) the rivalry strategy generates distortions that favor the agency compared to firms; (3) when passing from less persistent to more persistent R&D additionality/crowding-out effect, the lower the bias the greater the variance is and vice versa. As for the management of R&D funding policies, all the elements favouring greater collaboration between agency and firm objectives can help current R&D support to reach its social optimum.

Keywords: R&D subsidies; Rivalry vs. cooperation; Dynamic-stochastic games; Simulations (search for similar items in EconPapers)
JEL-codes: C63 C73 H2 O38 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-12
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ino and nep-tid
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Related works:
Journal Article: Are R&D Subsidies Provided Optimally? Evidence from a Simulated Agency-Firm Stochastic Dynamic Game (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:csc:cerisp:201011

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