Welfare properties of strategic R&D investments in Hotelling models

In linear-city models, if firms are allowed (not allowed) to locate outside the linear city, they engage in excessive (insufficient) R&D investments from the normative viewpoint. This implies that the feasible set of locations drastically affects their investments.     

Uncertainty, Patent Length and Firm R&D: a Comment

In a recent paper, Goel (1996) analyses the effect of patent length on firm's R&D in a model where the timing of innovations is stochastic. He concludes that: 'Higher patent length does not necessarily lead to more R&D spending' (1996, p. 77). More precisely, 'in projects with high probabilities of innovation success firms might actually reduce their R&D spending when the patent length increases' (1996, p. 78). This conclusion, however, is flawed. The purpose of this note is to correct Goel's analysis, showing that in his model an increase in patent's length unambiguously leads to higher R&D investment.¹     

R&D Returns,Spillovers and Firm Incentives: Evidence from China

Using a new data set of 12,000 firms in China, this paper estimates the returns to R&D investment and its spillover effects, and investigates how the returns to R&D depend on firm incentives. For the firms in the sample, the results show that on average firm output increases around 0.4 yuan for each additional 1 yuan spent on R&D in the previous year, and there is high R&D return regardless of whether the endogeneity of R&D intensity is dealt with or not. Interestingly, the marginal return to R&D is significantly higher in firms whose CEOs were not appointed by the government, and lower when CEO pay is directly related to annual performance. The return to R&D is higher in relatively poor regions and for firms with worse access to finance. There are also non-trivial R&D spillover effects.     

Firm growth and R&D: Evidence from the Portuguese manufacturing industry

This work studies the effects of R&D activities and investment, both physical and R&D, on the growth of firms by considering a dynamic firm growth model with serial correlation. The main hypotheses maintain that firms with a strong commitment to R&D have a higher growth rate, and investment has a positive effect on firm growth. We investigate such relations with reference to an unbalanced panel data set of Portuguese manufacturing firms over the period of 1990 to 2001. We find that a systematic tendency for smaller firms to grow more quickly is the main reason why firm growth is not entirely stochastic.     

The Impact of Cooperative R&D and Advertising on Innovation and Welfare

Journal of Quantitative Economics - This paper studies the impact of cooperative R&D and advertising on innovation and welfare in a duopolistic industry. The model incorporates two...     

North–South Trade, Income Distribution, and Welfare Effects of R&D Policy

The paper considers an extension of the Flam and Helpman model of North–South trade in which the government of South organizes and pays for R&D activity to reduce the production cost of quality-differentiated products. The main conclusions are the following: South has a welfare incentive to initiate R&D activity under some conditions on effectiveness of R&D in improving the technology. By doing so, South can increase the production of higher-quality differentiated products. North suffers a welfare loss from this R&D except in the case where the effectiveness of South's R&D activity is unusually high.     

An Empirical Analysis of R&D Transactions: Surrogate Technological Networks and Firm Performance

This paper uses statistical data from the annual R&D survey of financial flows received or spent by the firm for R&D activities. To describe R&D networks, attention is focused on the construction of four synthetic proxies from empirical literature on social networks: variety of partners, intensity, regularity of links, and centrality in networks. On the bases of the two available innovation surveys, we explore, through a cross section study, the impact of these different variables on technological performance of firms.     

Empirical Patterns of Firm Growth and R&D Investment: a Quality Ladder Model Interpretation

We present a partial equilibrium model of endogenous firm growth with R&D investment and stochastic innovation as the engines of growth, drawing on the quality ladder models in the macro growth literature, and the literature on patent races and the discrete choice models of product differentiation. The model fits a number of empirical patterns well, including: (i) a skewed size distribution of firms with persistent differences in firm sizes, (ii) firm growth independent of firm size, as stated in the so-called Gibrat's law, and (iii) R&D investment proportional to sales.     

The impact of public R&D expenditure on business R&D*

This paper attempts to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades. Grants, procurement, tax incentives and direct performance of research (in public laboratories or universities) are the major policy tools in the field. The major results of the study are the following: Direct government funding of R&D performed by firms has a positive effect on business financed R&D (except if the funding is targeted towards defence activities). Tax incentives have an immediate and positive effect on business-financed R&D; Direct funding as well as tax incentives are more effective when they are stable over time: firms do not invest in additional R&D if they are uncertain of the durability of the government support; Direct government funding and R&D tax incentives are substitutes: increased intensity of one reduces the effect of the other on business R&D; The stimulating effect of government funding varies with respect to its generosity: it increases up to a certain threshold (about 10% of business R&D) and then decreases beyond; Defence research performed in public laboratories and universities crowds out private R&D; Civilian public research is neutral for business R&D. * We thank the participants to various seminars, including the OECD Committee for Scientific and Technology Policy and the NBER 2000 Summer Institute on Productivity for helpful comments and suggestions. All opinions expressed in this article are those of the authors and do not reflect necessarily the views of the OECD or Université Libre de Bruxelles.     

Strategic R&D Co-operatives

Although firms have many reasons for investing in R&D, still market forces are believed to be inadequate for directing an optimal amount of funds towards R&D investments. An important tool for diminishing this failure on markets for R&D is to sustain R&D co-operatives, a policy instrument recently (re)discovered by public authorities. For quite some time the formal economics literature did not pay substantial attention to this policy, but with the appearance of the seminal analysis of d’Aspremont & Jacquemin (1988) this silence was abruptly disturbed.The objective of the present paper is to develop a general version of the d’Aspremont & Jacquemin (1988) model which still allows for the calculation of explicit equilibria and therefore enables a comparison between co-operative and non-co-operative R&D. While pursuing this objective an analysis is presented which encompasses several recent contributions to the literature.Having established this general characterization of a market with possible strategic R&D co-operatives the arguments against and in favour of this industrial policy are evaluated. It appears that there are circumstances when these strategic alliances could indeed be socially beneficial. However there remains always the threat of firms increasing their market power by extending the co-operative agreement to the product market.     

International R&D Rivalry with Spillovers and Policy Cooperation in R&D Subsidies and Taxes

Abstract

We have investigated non-cooperative and jointly optimal R&D policies in the framework of Spencer & Brander (1983) in the presence of R&D spillovers. When R&D activities are strategic substitutes and the R&D game exhibits a positive externality, the result of Spencer & Brander (1983) reverses: the non-cooperative policy is a tax while the jointly optimal policy is a subsidy. Moreover, when R&D activities are strategic complements, the usual result of the prisoners' dilemma in the strategic subsidy game does not hold, implying that a welfare intervention is preferable over laissez-faire. When spillovers are sufficiently large, the joint welfare increases with subsidies being higher than those under non-cooperation.     

Dynamic R&D choice and the impact of the firm's financial strength

ABSTRACT

This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long-run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long-run benefit of investing in R&D equals 6.6% of firm value. It ranges from 11.6% for firms in a strong financial position to 2.3% for firms in a weaker financial position.     

Strategic timing in R&D agreements

We study the endogenous formation of R&D agreements in a R&D/Cournot duopoly model with spillovers where also the timing of R&D investments is endogenous. This allows us to consider the incentives for firms to sign R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In this case, the stability of an agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When spillovers are sufficiently high, the coordination of R&D efforts becomes a profitable option, although firms may also have an incentive to sequence noncooperatively their investment over time. Finally, when spillovers are asymmetric and knowledge mainly leaks from the leader to the follower, investing as follower may become extremely profitable, making R&D agreements hard to sustain unless firms strategically delay their joint investment in R&D.     

R&D subsidies and private R&D expenditures: evidence from Italian manufacturing data

This paper uses a comprehensive firm level data set for the manufacturing sector in Italy to investigate the effect of government support on privately financed R&D expenditure. Estimates from a non‐parametric matching procedure suggest that public assistance has a positive effect on private R&D investment in the sense that the recipient firms achieve more private R&D than they would have without public support. This indicates that the possibility of perfect crowding out between private and public funds can be rejected. Furthermore, in this sample of Italian firms, tax incentives appear to be more effective than direct grants. The paper also examines whether public funding affects the financial sources available for R&D and finds that grants encourage the use of internal sources. The results also show some evidence of positive effects on credit financing for R&D.     

R&D financing and growth

ABSTRACT

R&D investment are an important engine of growth and development. Yet economists have often claimed underinvestment, based on the consideration that these projects are more costly to finance, especially, due to the asymmetric information between inside and outside investors. Coherently, a recent empirical evidence has shown that firms intensively active in R&D are less leveraged and rely more heavily on internal finance. Motivated by this evidence, we study the effects of asymmetric information and financial frictions within a GE economy of Schumpeterian tradition. The model and equilibrium concept are rich enough to represent investment and innovation decisions, technology adoption/diffusion through patent licensing and, most importantly, firms' financial decisions. In this representation, R&D-intensive firms might effectively rely more on internal sources and equity than on debt financing, relative to what would happen in frictionless markets. Further, financial decisions affect aggregate investment and income dynamics.     

Assessing the influence of differentiation strategy and R&D subsidies on R&D cooperation

This paper explores the R&D cooperation determinants of the innovative companies belonging to the Spanish manufacturing sector. Our findings suggest that the variable R&D subsidy is endogenous, significant, and has a strong positive influence on R&D cooperation. This is a clear indication that the achievement of public aid is often conditioned by the obligation for companies to cooperate in R&D. We have also found that the differentiation strategy variable is significant and has a negative influence on R&D cooperation. Companies positioned in a differentiation strategy probably own and use some different knowledge from other companies. Consequently, they will not have much interest in taking advantage of the spillovers generated by other companies. It is therefore logical that they are reluctant to establish cooperation agreements on R&D. Therefore, companies positioned in the differentiation strategy need public policies to support R&D that are not conditioned to the establishment of cooperation agreements.     

R&D boundaries of the firm: An estimation of the double-hurdle model on commissioned R&D,joint R&D,and licensing in Japan

This paper studies the firm’s decisions on in-house R&D and its procurement from outside through commissioned R&D, joint R&D, and technology acquisitions (i.e., licensing-in). Using the data about 14,000 manufacturing firms in Japan, we estimate a modified double-hurdle model in which the first hurdle determines whether the firm should perform any R&D at all and the second hurdle determines whether (and how much) it should perform each mode of procured R&D. The results generally support the two major theories—the transaction cost theory and the capability theory. The estimated positive effects of firm size, in-house R&D intensity, diversification, and vertical integration support the hypothesis that capability is needed for procured R&D, while the estimated positive effect of the index of appropriability by patents supports the hypothesis that this appropriability reduces transaction costs. In addition, we found that information flow from scientific sources and that from transaction-based sources affect the three modes of procured R&D differently.