Paul S. Segerstrom ()
Paul S. Segerstrom: Tore Browaldh Professor of International Economics, Postal: Stockholms School of Economics P.O. Box 6501, SE-113 83 Stockholm, Sweden
Abstract: This paper presents a model to explain why both industry leaders and follower firms often invest in R&D and explores the welfare implications of these R&D investment choices. Regardless of initial conditions, the equilibrium path in this model involves gradually convergence to a balanced growth path and R&D subsidies have no effect on the balanced growth rate. Nevertheless, it is always optimal for the government to intervene by subsidizing the R&D expenditures of industry leaders and taxing the R&D expenditures of follower firms. Without government intervention, market forces generate too much creative destruction.
38 pages, December 12, 1999
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