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Licensed Unlicensed Requires Authentication Published by De Gruyter November 30, 2019

Subsidizing Technological Innovations in the Presence of R&D Spillovers

  • Carsten Helm and Anja Schöttner
From the journal German Economic Review

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.

Published Online: 2019-11-30
Published in Print: 2008-08-01

© 2019 by Walter de Gruyter Berlin/Boston

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