On subsidization of investments in R&D and production capacity

Martijn W. Ketelaars and Peter Kort

European Journal of Operational Research, 2025, vol. 321, issue 3, 1036-1054

Abstract: This article considers a sequential investment project which starts with a product innovation phase, and subsequently, once R&D is completed, a production phase. The investment decisions are the timing and size of the R&D investment, and the size of the production capacity. We show that from a social welfare perspective the firm starts the R&D project too late and installs a too low production capacity. We find that subsidization of the R&D investment is more effective in reducing this welfare loss than subsidization of the production capacity. In fact, we reach the same conclusion under both isoelastic and linear demand.

Keywords: Investment analysis; Research and development; Subsidies; Welfare; Real options (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221724007963
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:321:y:2025:i:3:p:1036-1054

DOI: 10.1016/j.ejor.2024.10.021

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().