Are Public and Private R&D Investments Complements or Substitutes?

Anna Eulerich, geb. Bohnstedt

No 485, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: We develop a general equilibrium model with heterogeneous firms à la Melitz (2003), where both the government and firms can invest into R&D to improve the country's technological potential. A higher technological potential raises the average productivity of firms, thus implying lower consumer prices, and eventually leads to a welfare gain. The government's public and firms' private investments are modelled in a three-stage game, in which the government in the first stage invests into a basic research level, and then firms conduct private R&D building on this publicly provided 'technology' in the second stage. We find that private R&D investments are hump-shaped with respect to the basic research level. For lower levels public and private investments are complements, while for higher levels they are substitutes.

Keywords: heterogeneous firms; public and private R&D investments; basic research; innovation (search for similar items in EconPapers)
JEL-codes: H4 O3 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-eff and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:485

DOI: 10.4419/86788551

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