IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/17717.html
   My bibliography  Save this paper

R&D and Subsidy Policy with Imperfect Project Classification

Author

Listed:
  • Gehrig, Thomas
  • Stenbacka, Rune

Abstract

We characterize optimal subsidies for firms facing limitations in their ability to correctly classify risky R&D projects. We demonstrate that the optimal subsidy is an increasing function of firms' ability to reduce type-I errors in accepting projects with a success potential, and a decreasing function in their type-II error of adopting projects with no success potential. Moreover, the optimal subsidy is decreasing in the informational advantage regarding the assessment of project viability of private firms relative to the government.

Suggested Citation

  • Gehrig, Thomas & Stenbacka, Rune, 2022. "R&D and Subsidy Policy with Imperfect Project Classification," CEPR Discussion Papers 17717, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17717
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP17717
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Saul Lach & Zvika Neeman & Mark Schankerman, 2021. "Government Financing of R&D: A Mechanism Design Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 13(3), pages 238-272, August.
    2. Daron Acemoglu & Ufuk Akcigit & Harun Alp & Nicholas Bloom & William Kerr, 2018. "Innovation, Reallocation, and Growth," American Economic Review, American Economic Association, vol. 108(11), pages 3450-3491, November.
    3. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    4. Dirk Czarnitzki & Andrew Toole, 2007. "Business R&D and the Interplay of R&D Subsidies and Product Market Uncertainty," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(3), pages 169-181, November.
    5. Thomas Gehrig & Pierre Regibeau & Kate Rockett, 2000. "original papers : Project evaluation and organizational form," Review of Economic Design, Springer;Society for Economic Design, vol. 5(2), pages 177-199.
    6. Ben R. Martin, 2016. "R&D policy instruments -- a critical review of what we do and don’t know," Industry and Innovation, Taylor & Francis Journals, vol. 23(2), pages 157-176, February.
    7. Sabrina T. Howell, 2017. "Financing Innovation: Evidence from R&D Grants," American Economic Review, American Economic Association, vol. 107(4), pages 1136-1164, April.
    8. David Besanko & Jian Tong & Jason Jianjun Wu, 2018. "Subsidizing research programs with “if†and “when†uncertainty in the face of severe informational constraints," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 285-310, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rainer Widmann, 2023. "The Behavioral Additionality of Government Research Grants," Rationality and Competition Discussion Paper Series 417, CRC TRR 190 Rationality and Competition.
    2. Munari, Federico & Toschi, Laura, 2021. "The impact of public funding on science valorisation: an analysis of the ERC Proof-of-Concept Programme," Research Policy, Elsevier, vol. 50(6).
    3. Ahlvik, Lassi & van den Bijgaart, Inge, 2024. "Screening green innovation through carbon pricing," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    4. Toivanen, Otto & Takalo, Tuomas & Tanayama, Tanja, 2017. "Welfare Effects of R&D Support Policies," CEPR Discussion Papers 12155, C.E.P.R. Discussion Papers.
    5. Liliana Gelabert & Martín Pereyra & Flavia Roldán, 2021. "Public support prevalence and innovation behavior. Uruguay 2007-2015," Documentos de Investigación 127, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    6. Swank, Otto & Visser, Bauke, 2008. "The consequences of endogenizing information for the performance of a sequential decision procedure," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 667-681, March.
    7. Reda Cherif & Christoph Grimpe & Fuad Hasanov & Wolfgang Sofka, 2023. "Promoting Innovation: The Differential Impact of R&D Subsidies," Journal of Industry, Competition and Trade, Springer, vol. 23(3), pages 187-241, December.
    8. Thomas H. W. Ziesemer, 2021. "The Effects of R&D Subsidies and Publicly Performed R&D on Business R&D: A Survey," Hacienda Pública Española / Review of Public Economics, IEF, vol. 236(1), pages 171-205, March.
    9. Saul Lach & Zvika Neeman & Mark Schankerman, 2021. "Government Financing of R&D: A Mechanism Design Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 13(3), pages 238-272, August.
    10. Chu, Chien-Chi & Li, Yong-Li & Li, Shi-Jie & Ji, Yun, 2021. "Uncertainty, venture capital and entrepreneurial enterprise innovation—Evidence from companies listed on China's GEM," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    11. Serenella Caravella & Francesco Crespi, 2021. "The role of public procurement as innovation lever: evidence from Italian manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 30(7), pages 663-684, October.
    12. Chen, Jin & Heng, Cheng Suang & Tan, Bernard C.Y. & Lin, Zhijie, 2018. "The distinct signaling effects of R&D subsidy and non-R&D subsidy on IPO performance of IT entrepreneurial firms in China," Research Policy, Elsevier, vol. 47(1), pages 108-120.
    13. Kärnä, Anders & Karlsson, Johan & Engberg, Erik & Svensson, Peter, 2020. "Political Failure: A Missing Piece in Innovation Policy Analysis," Working Paper Series 1334, Research Institute of Industrial Economics, revised 21 Apr 2022.
    14. Andrea Bellucci & Luca Pennacchio & Alberto Zazzaro, 2019. "Public R&D subsidies: collaborative versus individual place-based programs for SMEs," Small Business Economics, Springer, vol. 52(1), pages 213-240, January.
    15. Gehrig, Thomas & Bester, Helmut & ,, 2012. "Loan Sales and Screening Incentives," CEPR Discussion Papers 9084, C.E.P.R. Discussion Papers.
    16. Andrea Bellucci & Luca Pennacchio & Alberto Zazzaro, 2016. "Public subsidies for SME research and development: Empirical evaluation of collaborative versus individual place-based programs," Mo.Fi.R. Working Papers 133, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    17. Guo, Di & Guo, Yan & Jiang, Kun, 2022. "Government R&D support and firms’ access to external financing: funding effects, certification effects, or both?," Technovation, Elsevier, vol. 115(C).
    18. Gehrig, Thomas & Stenbacka, Rune, 2021. "Journal competition and the quality of published research: Simultaneous versus sequential screening," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    19. Widmann, Rainer, 2024. "The behavioral additionality of government research grants," International Journal of Industrial Organization, Elsevier, vol. 93(C).
    20. Helena Lenihan & Kevin Mulligan & Justin Doran & Christian Rammer & Olubunmi Ipinnaiye, 2024. "R&D grants and R&D tax credits to foreign-owned subsidiaries: Does supporting multinational enterprises’ R&D pay off in terms of firm performance improvements for the host economy?," The Journal of Technology Transfer, Springer, vol. 49(2), pages 740-781, April.

    More about this item

    Keywords

    Imperfect screening; Subsidy policies;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:17717. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.