Subsidizing Technological Innovations in the Presence of R&D Spillovers |
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Authors: | Carsten Helm, Anja Schö ttner |
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Affiliation: | Technical University Darmstadt; University of Bonn |
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Abstract: | Abstract. We analyze a situation where a principal wants to induce two firms to produce an output, for example electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production cost of the output. Part of these investments spills over and also reduces production cost of the other firm. Comparing a general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output is always higher under the tournament, even though this scheme may lead to more innovation. |
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Keywords: | Q55 D82 H23 D43 |
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