Scandinavian Working Papers in Economics
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Bank of Finland Research Discussion Papers, Bank of Finland

No 7/2008:
Evaluating innovation policy: a structural treatment effect model of R&D subsidies

Tuomas Takalo (), Tanja Tanayama () and Otto Toivanen ()

Abstract: This paper studies the welfare effects of R&D subsidies. We develop a model of continuous optimal treatment with outcome heterogeneity where the treatment outcome depends on applicant investment. The model takes into account heterogeneous application costs and identifies the treatment effect on the public agency running the programme. Under the assumption of a welfare-maximizing agency, we identify general equilibrium treatment effects. Applyiing our model to R&D project-level data we find substantial treatment effect heterogeneity. Agency-specific treatment effects are smaller than private treatment effects. We find that the rate of return on subsidies for the agency is 3050%.

Keywords: applications; effort; investment; R&D; selection; subsidies; treatment programme; treatment effects; welfare; (follow links to similar papers)

JEL-Codes: C31; L53; O31; O38; (follow links to similar papers)

59 pages, March 11, 2008

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This paper is published as:
Takalo, Tuomas, Tanja Tanayama and Otto Toivanen, (2013), 'Evaluating innovation policy: a structural treatment effect model of R&D subsidies', Review of Economics and Statistics, Vol. 95, March, No. 1, pages 255-272

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