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Incremental R$D Subsidies

Author

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  • RICHARDSON, M.
  • WILKIE, S.

Abstract

An Incremental Incentive Scheme (IIS) encourages some activity by rewarding an agent for overachieving a base level determined by past performance but not penalizing underachievement. We examine an IIS R&D subsidy in a dynamic model due to Grossman and Shapiro (1986). We show that the firm's optimal R&D path either cycles around the no-subsidy path or follows a "ratchet" pattern of small increases in R&D relative to the no-subsidy path. A simple condition determines which type of behavior occurs. Furthermore, we show that an IIS may be an inefficient method of encouraging R&D compared to a flat-rate subsidy. Copyright 1995 by Kluwer Academic Publishers
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Richardson, M. & Wilkie, S., 1988. "Incremental R$D Subsidies," Papers 133, Princeton, Woodrow Wilson School - Public and International Affairs.
    • Handle: RePEc:fth:priwpu:133
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    Cited by:

    1. Siebert, Horst & Long, Ngo Van, 1984. "Lay-off restraints, employment subsidies, and the demand for labour," Discussion Papers, Series I 190, University of Konstanz, Department of Economics.
    2. Russell Thomson, 2010. "Tax Policy and R&D Investment by Australian Firms," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 260-280, June.
    3. Russell Thomson, 2013. "Measures of R&D Tax Incentives for OECD Countries," Review of Economics and Institutions, Università di Perugia, vol. 4(3).
    4. Russell Thomson & Elizabeth Webster, 2012. "The Design of R & D Support Schemes for Industry," Economic Papers, The Economic Society of Australia, vol. 31(4), pages 464-477, December.

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