Subsidizing Technological Innovations in the Presence of R&D Spillovers

Subsidizing Technological Innovations in the Presence of R&D Spillovers Abstract. We analyze a situation where a principal wants to induce two firms to produce an output, for example electricity from renewable energy sources. Firms can undertake non‐contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output is always higher under the tournament, even though this scheme may lead to more innovation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png German Economic Review Wiley

Subsidizing Technological Innovations in the Presence of R&D Spillovers

German Economic Review, Volume 9 (3) – Aug 1, 2008

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Publisher
Wiley
Copyright
© 2008 The Authors. Journal compilation © Verein für Socialpolitik and Blackwell Publishing Ltd. 2008
ISSN
1465-6485
eISSN
1468-0475
DOI
10.1111/j.1468-0475.2008.00436.x
Publisher site
See Article on Publisher Site

Abstract

Abstract. We analyze a situation where a principal wants to induce two firms to produce an output, for example electricity from renewable energy sources. Firms can undertake non‐contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output is always higher under the tournament, even though this scheme may lead to more innovation.

Journal

German Economic ReviewWiley

Published: Aug 1, 2008

References

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