R&D Underinvestment and Subsidies

Angus Chu

Chapter 15 in Advanced Macroeconomics:An Introduction for Undergraduates, 2020, pp 121-127 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter, we will compare the decentralised equilibrium allocation in the Jones model to its socially optimal allocation chosen by a social planner. As we will show, due to the presence of R&D externality, the market equilibrium level of R&D labour is lower than its socially optimal level. In other words, as a result of market failure, the market economy exhibits a social problem of R&D underinvestment. In this case, it is socially optimal for the government to provide policy intervention in the form of R&D subsidy…

Keywords: Macroeconomics; Dynamic General Equilibrium; Economic Growth; Endogenous Technological Change; Monetary Policy; Fiscal Policy; Business Cycles; Unemployment; Market Failure; The Neoclassical Growth Model; The Romer Model; The Schumpeterian Growth Model; The Solow Growth Model; The Ramsey Model; The New Keynesian Model (search for similar items in EconPapers)
JEL-codes: E6 E62 E66 F4 F43 O11 (search for similar items in EconPapers)
Date: 2020
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