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Realized Cost‐Based Subsidies For Strategic R&D Investments With Ex Ante And Ex Post Asymmetries

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  • MINORU KITAHARA
  • TOSHIHIRO MATSUMURA

Abstract

We discuss stochastic cost‐reducing R&D investments and examine efficient subsidies. We discuss a two‐stage duopoly model in which each firm chooses R&D levels (innovation size and probability of success) in the first stage and competes à la Cournot in the second stage. We find that simple subsidies depending on the realized cost differences induce the efficient levels of R&D with respect to the innovation size and probability of success by two firms regardless of ex ante and ex post asymmetries between the two firms.

Suggested Citation

  • Minoru Kitahara & Toshihiro Matsumura, 2006. "Realized Cost‐Based Subsidies For Strategic R&D Investments With Ex Ante And Ex Post Asymmetries," The Japanese Economic Review, Japanese Economic Association, vol. 57(3), pages 438-448, September.
    • Handle: RePEc:bla:jecrev:v:57:y:2006:i:3:p:438-448
    DOI: 10.1111/j.1468-5876.2006.00322.x
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