STRATEGIC RESEARCH AND DEVELOPMENT POLICY: SOCIETAL OBJECTIVES AND THE CORPORATE WELFARE ARGUMENT

Richard Gretz, Jannett Highfill () and Robert C. Scott

Contemporary Economic Policy, 2009, vol. 27, issue 1, 28-45

Abstract: The article considers the optimal research and development subsidy regime in a two‐firm two‐country model where each firm is “located” in a specific country. Trade is intra‐industry in that customers in both countries purchase from both firms. The article suggests that when both countries subsidize their local firm usually welfare increases compared to the case of zero subsidies. Making the same comparison, profit always falls in the symmetric game and falls about half the time in the asymmetric game. These results call into question some common notions about corporate welfare. (JEL O38, H25, F23)

Date: 2009
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https://doi.org/10.1111/j.1465-7287.2008.00109.x

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