EconPapers    
Economics at your fingertips  
 

Information asymmetry, risk aversion and R&D subsidies: Effect-size heterogeneity and policy conundrums

Mehmet Ugur () and Eshref Trushin

No 32224, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: Drawing on the theory of contracts and Schumpeterian models of innovation, we argue that direct public support for business R&D may deliver sub-optimal outcomes if firms are risk-averse and have private information about their R&D productivity. Using observable proxies for risk aversion and R&D productivity, we report that the average treatment effect (ATT) in the sample of sample of 43,650 British firms is positive but highly heterogenous. The ATTs tend to be: (a) insignificant or negligible when the perceived risk of R&D investment is high due to crisis episodes or because of investment in basic research; (b) insignificant among larger and older firms and firms closer to the R&D frontier; and (c) positive and larger than the average among small and young firms and firms further away from the R&D frontier. Our findings point out to conundrums in the use of R&D subsidies as an innovation policy tool: The case for R&D subsidies is stronger during economic downturns, when the investment is in basic R&D and when firms have a higher probability of innovation success; but the subsidy is less likely to increase business R&D under these conditions.

Keywords: Treatment effect; R&D subsidy; innovation; additionality; entropy balancing; contract theory; Schumpeterian models (search for similar items in EconPapers)
Date: 2021-04-12
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://gala.gre.ac.uk/id/eprint/32224/1/32224%20UG ... sk_Aversion_2021.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://gala.gre.ac.uk/id/eprint/32224/1/32224%20UGUR_Information_Asymmetry_and_Risk_Aversion_2021.pdf [302 Moved Temporarily]--> https://gala.gre.ac.uk/id/eprint/32224/1/32224%20UGUR_Information_Asymmetry_and_Risk_Aversion_2021.pdf)

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:gpe:wpaper:32224

Access Statistics for this paper

More papers in Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre Contact information at EDIRC.
Bibliographic data for series maintained by Nadine Edwards ().

 
Page updated 2021-10-18
Handle: RePEc:gpe:wpaper:32224