Cooperative and Non-Cooperative R&D Policy in an Economic Union |
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Authors: | Jan Haaland Hans Jarle Kind |
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Affiliation: | (1) Norwegian School of Economics and Business Administration (NHH), 5045 Bergen, Norway |
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Abstract: | What are the consequences of decentralized R&;D policies within an economic union? Do non-cooperative policies generate too high R&;D subsidies? To address such questions, we construct a simple model where firms invest in quality-improving R&;D. With goods produced in different countries within an economic union, we compare non-cooperative and cooperative R&;D policies. We show that non-cooperative policies imply too small R&;D subsidies for horizontally differentiated goods and too high subsidies for close substitutes. Furthermore, small countries have less incentive to subsidize R&;D than large countries, resulting in an unwarranted vertical product differentiation between goods produced in different countries. |
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Keywords: | Trade R& D subsidies economic union |
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