International R&D Rivalry with Spillovers and Policy Cooperation in R&D Subsidies and Taxes

Liao, Pei-Cheng

International Economic Journal, 2007, vol. 21, issue 3, pages 399-417

Abstract: We have investigated non-cooperative and jointly optimal R&D policies in the framework of Spencer & Brander (1983) in the presence of R&D spillovers. When R&D activities are strategic substitutes and the R&D game exhibits a positive externality, the result of Spencer & Brander (1983) reverses: the non-cooperative policy is a tax while the jointly optimal policy is a subsidy. Moreover, when R&D activities are strategic complements, the usual result of the prisoners' dilemma in the strategic subsidy game does not hold, implying that a welfare intervention is preferable over laissez-faire. When spillovers are sufficiently large, the joint welfare increases with subsidies being higher than those under non-cooperation.

Keywords: R&D spillovers; R&D subsidy/tax; strategic substitutes/complements; externality (search for similar items in EconPapers)
Date: 2007

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Persistent link: http://EconPapers.repec.org/RePEc:taf:intecj:v:21:y:2007:i:3:p:399-417

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