Supply Chain Disruption and Precautionary Industrial Policy

Michele Polo and Massimo Motta

No 1466, Working Papers from Barcelona School of Economics

Abstract: The paper analyzes the design of industrial policies, in the form of subsidies to innovation activity or to local production, when domestic ï¬ rms are inefficient and there is a risk of supply-chain disruption. We ï¬ rst establish a case for research subsidies, since private investment (to improve the inferior technology) is lower than the socially optimal one. We next show the equivalence with subsidies to (inefficient) local production in case of intertemporal economies of scale. Then, within a general frame- work, we analyze proï¬ t and welfare maximizing investments and optimal subsidies in case of segmented markets and an integrated market organized as a duopoly, a monopoly or a research joint-venture. We show that research joint ventures or a public research center socially outperform the other environments since they beneï¬ t from a larger integrated market and a wider circulation of the innovation while preserving a competitive market. Finally, in large markets with signiï¬ cant technology gaps, it may be convenient to concentrate all the research in a single lab while maintaining a competitive market.

Keywords: resilience; industrial policy (search for similar items in EconPapers)
JEL-codes: L40 L52 O31 O32 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-com and nep-ind
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