Abstract
We study subsidy policies for research programs when firms have private information about the likelihood of project viability, but the government cannot form a unique prior about this likelihood. When the shadow cost of public funds is zero, first-best welfare can be attained as a (belief-free) ex post equilibrium under both monopoly and competition, but it cannot be attained when the shadow cost is positive. However, max-min subsidy policies exist under monopoly and competition and consist of pure matching subsidies. Under a Research and Development (R&D) consortium, the highest max-min matching rate is lower than under competition, and R&D investment intensity is higher.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 285-310 |
| Number of pages | 26 |
| Journal | RAND Journal of Economics |
| Volume | 49 |
| Issue number | 2 |
| DOIs | |
| State | Published - Jun 1 2018 |
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ASJC Scopus subject areas
- Economics and Econometrics
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Subsidizing research programs with “if” and “when” uncertainty in the face of severe informational constraints. / Besanko, David; Tong, Jian; Wu, Jason Jianjun.
In: RAND Journal of Economics, Vol. 49, No. 2, 01.06.2018, p. 285-310.Research output: Contribution to journal › Article
TY - JOUR
T1 - Subsidizing research programs with “if” and “when” uncertainty in the face of severe informational constraints
AU - Besanko, David
AU - Tong, Jian
AU - Wu, Jason Jianjun
PY - 2018/6/1
Y1 - 2018/6/1
N2 - We study subsidy policies for research programs when firms have private information about the likelihood of project viability, but the government cannot form a unique prior about this likelihood. When the shadow cost of public funds is zero, first-best welfare can be attained as a (belief-free) ex post equilibrium under both monopoly and competition, but it cannot be attained when the shadow cost is positive. However, max-min subsidy policies exist under monopoly and competition and consist of pure matching subsidies. Under a Research and Development (R&D) consortium, the highest max-min matching rate is lower than under competition, and R&D investment intensity is higher.
AB - We study subsidy policies for research programs when firms have private information about the likelihood of project viability, but the government cannot form a unique prior about this likelihood. When the shadow cost of public funds is zero, first-best welfare can be attained as a (belief-free) ex post equilibrium under both monopoly and competition, but it cannot be attained when the shadow cost is positive. However, max-min subsidy policies exist under monopoly and competition and consist of pure matching subsidies. Under a Research and Development (R&D) consortium, the highest max-min matching rate is lower than under competition, and R&D investment intensity is higher.
UR - http://www.scopus.com/inward/record.url?scp=85046416516&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85046416516&partnerID=8YFLogxK
U2 - 10.1111/1756-2171.12227
DO - 10.1111/1756-2171.12227
M3 - Article
VL - 49
SP - 285
EP - 310
JO - RAND Journal of Economics
JF - RAND Journal of Economics
SN - 0741-6261
IS - 2
ER -