Subsidizing Technological Innovations in the Presence of R&D Spillovers

Carsten Helm and Anja Schöttner

German Economic Review, 2008, vol. 9, issue 3, 339-353

Abstract: We analyze a situation where a principal wants to induce two firms to produce an output, for example electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the principal’s expected cost of implementing a given expected output is always higher under the tournament, even though this scheme may lead to more innovation.

Keywords: Moral hazard; R&D spillovers; subsidies; tournaments (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Subsidizing Technological Innovations in the Presence of R&D Spillovers (2009)
Journal Article: Subsidizing Technological Innovations in the Presence of R&D Spillovers (2008)
Working Paper: Subsidizing Technological Innovations in the Presence of R&D Spillovers (2005)
Working Paper: Subsidizing technological innovations in the presence of R&D spillovers (2005)
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DOI: 10.1111/j.1468-0475.2008.00436.x

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