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 |
Funding
\u2217Northwestern University; [email protected]. \u2217\u2217University of Southampton; [email protected]. \u2217\u2217\u2217Compass Lexecon; [email protected]. The authors would like to thank Alberto Galasso and Nick Klein for their very helpful comments as well as participants at 2009 International Industrial Organization Conference at Boston and 2010 Southwest Economic Theory Conference at Los Angeles. We also thank Mark Armstrong and two anonymous referees for their extremely conscientious reviews and for their valuable suggestions. Besanko gratefully acknowledges the financial support from the National Science Foundation under grant no. 0615615.
ASJC Scopus subject areas
- Economics and Econometrics