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
N1 - Funding Information:
∗Northwestern University; d-besanko@kellogg.northwestern.edu. ∗∗University of Southampton; j.tong@soton.ac.uk. ∗∗∗Compass Lexecon; jwu@compasslexecon.com. 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.
Publisher Copyright:
© 2018, The RAND Corporation.
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.
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U2 - 10.1111/1756-2171.12227
DO - 10.1111/1756-2171.12227
M3 - Article
AN - SCOPUS:85046416516
VL - 49
SP - 285
EP - 310
JO - RAND Journal of Economics
JF - RAND Journal of Economics
SN - 0741-6261
IS - 2
ER -
