Research Discussion Papers, Bank of Finland
No 2/2013:
Market failures and the additionality effects of public support to private R&D: Theory and empirical implications
Tuomas Takalo ()
, Tanja Tanayama ()
and Otto Toivanen ()
Abstract: We extend the theoretical basis of the empirical
literature on the effects of R&D subsidies by providing an estimable model
of strategic interaction among subsidy applicants, and public and private
sector R&D financiers. Our model incorporates fixed R&D costs and a cost of
external finance. We derive the optimal support rule. At the intensive
(extensive) margin the costs of external funding reduce (increase) the
optimal subsidy rate. We also establish necessary and sufficient conditions
for the existence of additionality. It turns out that additionality at the
intensive margin is less likely with large spillovers. Our results suggest
that the relationship between additionality and welfare may not be
straightforward.
Keywords: R&D; entrepreneurial finance; R&D subsidies; innovation policy; (follow links to similar papers)
JEL-Codes: G28; H25; L32; O38; (follow links to similar papers)
40 pages, February 13, 2013
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- This paper is published as:
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Takalo, Tuomas, Tanja Tanayama and Otto Toivanen, (2013), 'Market failures and the additionality effects of public support to private R&D: Theory and empirical implications', International Journal of Industrial Organization, Vol. 31, September, pages 634-642
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