Matching public support for private product-innovating R&D: a theoretical analysis |
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Authors: | Pavlo Buryi Sajal Lahiri |
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Institution: | 1. Department of Economics, Northern Illinois University, DeKalb, IL, USA;2. Department of Economics, Southern Illinois University Carbondale, Carbondale, IL, USA |
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Abstract: | This paper develops a theoretical model of product innovation where research and development (R&D) effort by a monopolist firm is endogenous and its outcome uncertain. The government attempts to aid such efforts with a matching grant. We consider different scenarios depending on whether two parties act simultaneously, act sequentially, or take part in a dynamic cooperative game with a trigger strategy. We also consider cases (i) when the products are exported, (ii) when the firm lobbies for R&D subsidy, and (iii) when the firm is foreign owned. We characterize situations when government intervention increases the chances of product innovation and when it does not. |
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Keywords: | Product innovation R& D matching subsidy |
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