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Output subsidies in mixed oligopoly with research spillovers

Shoji Haruna and Rajeev Goel
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Shoji Haruna: Okayama University

Journal of Economics and Finance, 2017, vol. 41, issue 2, No 2, 235-256

Abstract: Abstract Output subsidies have been proposed as a policy to rectify inefficiencies in mixed markets with public and private firms. This paper adds to the literature on mixed oligopolies by examining the behavior of firms, with research spillovers, and the government subsidizes output. A key finding is that output subsidies, unlike R&D subsidies, do not necessarily attain efficient resource allocation. Output subsidies are justified only at relatively low R&D spillovers. The rankings of optimal output subsidies, output and profits under alternate scenarios are significantly affected by spillovers. Social welfare ranking, on the other hand, is independent of spillovers, and welfare is largest under R&D competition.

Keywords: Mixed oligopoly; R&D; Spillovers; Output subsidy (search for similar items in EconPapers)
JEL-codes: O31 O33 L13 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s12197-015-9346-2

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Handle: RePEc:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-015-9346-2