Working Paper: CEPR ID: DP1243
Authors: Dermot Leahy; J Peter Neary
Abstract: This paper examines the free-market and socially-optimal outcomes in a dynamic oligopoly model with R&D spillovers. First-best optimal subsidies to R&D are higher when firms play strategically against each other, but lower when they cooperate on R&D (at least with high spillovers) and when they play strategically against the government. Second-best optimal subsidies to R&D are presumptively higher than first-best ones, but policies to encourage cooperation are likely to be redundant (since it is always privately profitable) and simulations suggest that the welfare cost of lax competition policy is high.
Keywords: Research and Development; R&D Spillovers; R&D Cooperation; Research Joint Ventures; Subgame Perfect Equilibrium; Strategic Aspects of Public Policy
JEL Codes: D43; L13; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D cooperation (O36) | higher output (E23) |
| R&D cooperation (O36) | higher welfare (I31) |
| strategic behavior (L21) | lower output (E23) |
| strategic behavior (L21) | lower welfare (I38) |
| higher strategic behavior (L21) | higher optimal subsidies for R&D (O38) |
| R&D cooperation (O36) | reduced need for subsidies (H23) |