Market failures and the additionality effects of public support to private R&D: Theory and empirical implications

Tuomas Takalo, Tanja Tanayama and Otto Toivanen

No 2/2013, Bank of Finland Research Discussion Papers from Bank of Finland

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 (search for similar items in EconPapers)
JEL-codes: G28 H25 L32 O31 O38 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Market failures and the additionality effects of public support to private R&D: Theory and empirical implications (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2013_002

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