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R&D Subsidies, Spillovers, and Privatization in Mixed Markets
Author(s) -
Gil-Moltó Maria José,
Poyago-Theotoky Joanna,
Zikos Vasileios
Publication year - 2011
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-78.1.233
Subject(s) - subsidy , duopoly , production (economics) , economics , microeconomics , welfare , social welfare , distribution (mathematics) , market economy , cournot competition , mathematics , mathematical analysis , political science , law
We examine the use of subsidies to research and development (R&D) in a mixed and a private duopoly market. We show that the socially optimal R&D subsidy is increasing in the degree of spillovers, but it is lower in the private duopoly. The optimal R&D subsidy leads to an increase in total R&D and production; however, it does not lead to the equalization of per firm output and therefore to an efficient distribution of production costs. We also find that privatization of the public firm reduces R&D activity and welfare in the duopoly market. This result stands even when optimal R&D subsidies are provided.