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Supply Chain Disruption and Precautionary Industrial Policy

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  • Massimo Motta
  • Michele Polo

Abstract

The paper analyzes the design of industrial policies, in the form of subsidies to innovation activity or to local production, when domestic firms are inefficient and there is a risk of supply-chain disruption. We first establish a case for research subsidies, since private investment (to improve the inferior technology) is lower than the socially optimal one. We next show the equivalence with subsidies to (inefficient) local production in case of intertemporal economies of scale. Then, within a general frame- work, we analyze profit and welfare maximizing investments and optimal subsidies in case of segmented markets and an integrated market organized as a duopoly, a monopoly or a research joint-venture. We show that research joint ventures or a public research center socially outperform the other environments since they benefit from a larger integrated market and a wider circulation of the innovation while preserving a competitive market. Finally, in large markets with significant technology gaps, it may be convenient to concentrate all the research in a single lab while maintaining a competitive market.

Suggested Citation

  • Massimo Motta & Michele Polo, 2024. "Supply Chain Disruption and Precautionary Industrial Policy," Working Papers 1466, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1466
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    References listed on IDEAS

    as
    1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
    2. Gene M. Grossman & Elhanan Helpman & Alejandro Sabal, 2023. "Resilience in Vertical Supply Chains," Working Papers 2023-03, Princeton University. Economics Department..
    3. repec:bre:bebook:node_9216 is not listed on IDEAS
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    5. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
    6. Gene M. Grossman & Elhanan Helpman & Alejandro Sabal, 2023. "Resilience in Vertical Supply Chains," NBER Working Papers 31739, National Bureau of Economic Research, Inc.
    7. Cyrille Schwellnus & Antton Haramboure & Lea Samek & Ricardo Chiapin Pechansky & Charles Cadestin, 2023. "Global value chain dependencies under the magnifying glass," OECD Science, Technology and Industry Policy Papers 142, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    resilience; industrial policy;

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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