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Industrial Policy and Firm Heterogeneity

Pedro Barros () and Tore Nilssen ()

No 1986, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Our concern is about a firm-specific industrial policy. When R&D subsidies or taxes are differentiated among firms, the question arises which firms in an industry should receive such support. We analyse a situation where firms differ in their R&D technologies in two distinct ways: they differ both in the costs of performing R&D activities and in the output obtained from such activities. The introduction of several domestic firms creates a corrective motive for government intervention with the firms' R&D activities in addition to Spencer and Brander's strategic motive. We find that the optimal firm-specific industrial policy is affected differently by the two sources of firm heterogeneity. Moreover, a change in a firm's R&D productivity has an ambiguous effect on the optimal policy towards the firm.

Keywords: firm heterogeneity; Industrial Policy; R&D (search for similar items in EconPapers)
JEL-codes: F13 L52 O31 (search for similar items in EconPapers)
Date: 1998-10
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Journal Article: Industrial Policy and Firm Heterogeneity (1999) Downloads
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