Abstract
We implement an experimental design based on a duopoly game in order to analyse the impact of public subsidies on the willingness to cooperate in research and development (R&D) activities. We first implement six experimental markets by exogenously varying the level of knowledge spillovers (low or high) and the intensity of competition in the product market (low, intermediate, or high). We find that the probability of cooperation increases in the level of spillovers and decreases in that of market competition. We then replicate the six experimental markets by subsidising subjects who cooperate. Whenever they are sufficient to change the incentive structure of the game, subsidies substantially increase the probability of cooperation, causing, however, a reduction of R&D investments. Overall, our evidence suggests that, depending on the characteristics of the market, the provision of subsidies is not always desirable. These might be redundant because firms have sufficient private incentives to invest cooperatively in R&D, or even counterproductive, as they might induce firms to significantly reduce R&D investments compared to the noncooperative scenario.
Funding source: REPOS (RETI, POLITICHE PUBBLICHE, SVILUPPO)
Acknowledgments
Funding support by POR Campania – European Social Fund (REPOS Project) – is gratefully acknowledged. This project is part of the activities of the project “Innovation, digitalization and sustainability for the diffused economy in central Italy” research unit of the Università Politecnica delle Marche, Department of Economic and Social Sciences, Ancona (Italy). We are grateful to an anonymous referee and one of the editors-in-chief of this journal for their helpful comments. We thank Alfredo Del Monte for his valuable support and the discussion he provided on the previous draft of this paper. We also thank Guido De Blasio, Valerio Filoso, John H. Kagel, Tommaso Reggiani for comments, as well as all the participants to the workshop “Experiments in Public Management Research” at the Masaryk University of Brno (February 2019), the Conference of the Society for the Advancement of Behavioral Economics (SABE) in Moscow (July 2020), and the Southern Europe Experimental Team’s Workshop in Naples (February 2020). Tomáš Miklánek of the University of Economics of Prague provided us with excellent research assistance and programming. The usual disclaimers apply.
-
Research funding: Funding support by POR Campania – European Social Fund (REPOS Project) – is gratefully acknowledged.
References
Acconcia, A., and C. Cantabene. 2018. “Liquidity and Firms’ Response to Fiscal Stimulus.” The Economic Journal 128 (613): 1759–85. https://doi.org/10.1111/ecoj.12499.Search in Google Scholar
Aghion, P., S. Bechtold, L. Cassar, and H. Herz. 2018. “The Causal Effects of Competition on Innovation: Experimental Evidence.” Journal of Law, Economics, and Organization 34 (2): 162–95. https://doi.org/10.1093/jleo/ewy004.Search in Google Scholar
Aghion, P., N. Bloom, R. Blundell, R. Griffith, and P. Howitt. 2005. “Competition and Innovation: An Inverted-U Relationship.” Quarterly Journal of Economics 120 (2): 701–28. https://doi.org/10.1093/qje/120.2.701.Search in Google Scholar
Angrist, J. D., and J. S. Pischke. 2009. Mostly Harmless Econometrics: An Empiricist’s Companion. Princeton: Princeton University Press.10.1515/9781400829828Search in Google Scholar
Antonelli, C., and F. Crespi. 2013. “The ‘Matthew Effect’ in R&D Public Subsidies: The Italian Evidence.” Technological Forecasting and Social Change 80 (8): 1523–34. https://doi.org/10.1016/j.techfore.2013.03.008.Search in Google Scholar
Arrow, K. J. 1972. Economic Welfare and the Allocation of Resources for Invention, 219–36. UK: Macmillan Education.10.1007/978-1-349-15486-9_13Search in Google Scholar
Belderbos, R., M. Carree, and B. Lokshin. 2004. “Cooperative R&D and Firm Performance.” Research Policy 33 (10): 1477–92. https://doi.org/10.1016/j.respol.2004.07.003.Search in Google Scholar
Belleflamme, P., and M. Peitz. 2015. Industrial Organization: Markets and Strategies. Cambridge: Cambridge University Press.10.1017/CBO9781107707139Search in Google Scholar
Becker, B. 2015. “Public R&D Policies and Private R&D Investment: A Survey of the Empirical Evidence.” Journal of Economic Surveys 29 (5): 917–42. https://doi.org/10.1111/joes.12074.Search in Google Scholar
Cantabene, C., and I. Grassi. 2019. “Public and Private Incentives to R&D Cooperation in Italy.” Economics of Innovation and New Technology 28 (3): 217–42. https://doi.org/10.1080/10438599.2018.1461336.Search in Google Scholar
Capuano, C., and I. Grassi. 2019. “Spillovers, Product Innovation and R&D Cooperation: A Theoretical Model.” Economics of Innovation and New Technology 28 (2): 197–216. https://doi.org/10.1080/10438599.2018.1461333.Search in Google Scholar
Cason, T. N. 1995. “An Experimental Investigation of the Seller Incentives in the EPA’s Emission Trading Auction.” The American Economic Review 85 (4): 905–22.Search in Google Scholar
Cassiman, B., and R. Veugelers. 2002. “R&D Cooperation and Spillovers: Some Empirical Evidence from Belgium.” The American Economic Review 92 (4): 1169–84, https://doi.org/10.1257/00028280260344704.Search in Google Scholar
Cerulli, G. 2010. “Modelling and Measuring the Effect of Public Subsidies on Business R&D: A Critical Review of the Econometric Literature.” The Economic Record 86 (274): 421–49. https://doi.org/10.1111/j.1475-4932.2009.00615.x.Search in Google Scholar
Charness, G., U. Gneezy, and M. A. Kuhn. 2012. “Experimental Methods: Between-Subject and Within-Subject Design.” Journal of Economic Behavior & Organization 81 (1): 1–8. https://doi.org/10.1016/j.jebo.2011.08.009.Search in Google Scholar
Colombo, M. G., L. Grilli, and E. Piva. 2006. “In Search of Complementary Assets: The Determinants of Alliance Formation of High-Tech Start-Ups.” Research Policy 35 (8): 1166–99. https://doi.org/10.1016/j.respol.2006.09.002.Search in Google Scholar
Cox, J. C., V. Sadiraj, and S. X. Tang. 2023. “Morally Monotonic Choice in Public Good Games.” Experimental Economics: 1–29. https://doi.org/10.1007/s10683-022-09787-2.Search in Google Scholar
Crescenzi, R., G. de Blasio, and M. Giua. 2020. “Cohesion Policy Incentives for Collaborative Industrial Research: Evaluation of a Smart Specialisation Forerunner Programme.” Regional Studies 54 (10): 1341–53. https://doi.org/10.1080/00343404.2018.1502422.Search in Google Scholar
Czarnitzki, D., and H. Hottenrott. 2012. “Collaborative R&D as a Strategy to Attenuate Financing Constraints.” In ZEW-Centre for European Economic Research Discussion Paper, (12-049).10.2139/ssrn.2177881Search in Google Scholar
Czarnitzki, D., B. Ebersberger, and A. Fier. 2007. “The Relationship between R&D Collaboration, Subsidies and R&D Performance: Empirical Evidence from Finland and Germany.” Journal of Applied Econometrics 22 (7): 1347–66. https://doi.org/10.1002/jae.992.Search in Google Scholar
d’Aspremont, C., and A. Jacquemin. 1988. “Cooperative and Noncooperative R&D in Duopoly with Spillovers.” The American Economic Review 78: 1133–7.Search in Google Scholar
Darai, D., D. Sacco, and A. Schmutzler. 2010. “Competition and Innovation: An Experimental Investigation.” Experimental Economics 13 (4): 439–60. https://doi.org/10.1007/s10683-010-9250-8.Search in Google Scholar
Davis, D. D., and C. A. Holt. 1998. “Conspiracies and Secret Discounts in Laboratory Markets.” The Economic Journal 108 (448): 736–56. https://doi.org/10.1111/1468-0297.00312.Search in Google Scholar
Ersoy, F. 2021. “Returns to Effort: Experimental Evidence from an Online Language Platform.” Experimental Economics 24 (3): 1047–73. https://doi.org/10.1007/s10683-020-09689-1.Search in Google Scholar
Fischbacher, U. 2007. “Z-Tree: Zurich Toolbox for Ready-Made Economic Experiments.” Experimental Economics 10 (2): 171–8. https://doi.org/10.1007/s10683-006-9159-4.Search in Google Scholar
Fölster, S. 1995. “Do Subsidies to Cooperative R & D Actually Stimulate R&D Investment and Cooperation?” Research Policy 24 (3): 403–17. https://doi.org/10.1016/0048-7333(93)00773-m.Search in Google Scholar
Giebe, T., T. Grebe, and E. Wolfstetter. 2006. “How to Allocate R&D (And Other) Subsidies: An Experimentally Tested Policy Recommendation.” Research Policy 35 (9): 1261–72. https://doi.org/10.1016/j.respol.2006.01.008.Search in Google Scholar
Gigerenzer, G., and W. Gaissmaier. 2011. “Heuristic Decision Making.” Annual Review of Psychology 62: 451–82. https://doi.org/10.1146/annurev-psych-120709-145346.Search in Google Scholar
Greiner, B. 2004. An Online Recruitment System for Economic Experiments. Munich: MPRA.Search in Google Scholar
Griliches, Z. 1998. “R&D and Productivity: The Unfinished Business.” In R&D and Productivity: The Econometric Evidence, 269–83. Chicago: University of Chicago Press.10.7208/chicago/9780226308906.001.0001Search in Google Scholar
Halbheer, D., E. Fehr, L. Goette, and A. Schmutzler. 2009. “Self-Reinforcing Market Dominance.” Games and Economic Behavior 67 (2): 481–502. https://doi.org/10.1016/j.geb.2009.02.006.Search in Google Scholar
Horowitz, J. L. 2019. “Bootstrap Methods in Econometrics.” Annual Review of Economics 11: 193–224. https://doi.org/10.1146/annurev-economics-080218-025651.Search in Google Scholar
Isaac, R. M., and S. S. Reynolds. 1988. “Appropriability and Market Structure in Stochastic Invention Model.” Quarterly Journal of Economics 103: 647–71, https://doi.org/10.2307/1886068.Search in Google Scholar
Ioannou, C. A., M. Makris, and C. Ornaghi. 2021. “R&D Productivity and the Nexus between Product Substitutability and Innovation: Theory and Experimental Evidence.” Journal of Economic Behavior & Organization 186: 135–51. https://doi.org/10.1016/j.jebo.2021.03.027.Search in Google Scholar
Kahneman, D., and A. Tversky. 2013. “Choices, Values, and Frames.” In Handbook of the Fundamentals of Financial Decision Making: Part I, 269–78. London: World Scientific Publishing Co. Pte. Ltd.10.1142/9789814417358_0016Search in Google Scholar
Kamien, M. I., E. Muller, and I. Zang. 1992. “Research Joint Ventures and R&D Cartels.” The American Economic Review 82 (5): 1293–306.Search in Google Scholar
López, A. 2008. “Determinants of R&D Cooperation: Evidence from Spanish Manufacturing Firms.” International Journal of Industrial Organization 26 (1): 113–36. https://doi.org/10.1016/j.ijindorg.2006.09.006.Search in Google Scholar
MacKinnon, J. G. 2006. “Bootstrap Methods in Econometrics.” The Economic Record 82: S2–18. https://doi.org/10.1111/j.1475-4932.2006.00328.x.Search in Google Scholar
Moffatt, P. 2020. Experimetrics: Econometrics for Experimental Economics. London: Bloomsbury Publishing.Search in Google Scholar
Moffatt, P. G. 2021. “Experimetrics: A Survey.” Foundations and Trends® in Econometrics 11 (1–2): 1–152. https://doi.org/10.1561/0800000035.Search in Google Scholar
Østbye and Roelofs, 2013 Østbye, S. E., and M. R. Roelofs. 2013. “The Competition–Innovation Debate: Is R&D Cooperation the Answer?” Economics of Innovation and New Technology 22 (2): 153–76. https://doi.org/10.1080/10438599.2012.724908.Search in Google Scholar
Pippel, G. 2014. “R&D Cooperation for Non-Technological Innovations.” Economics of Innovation and New Technology 23 (7): 611–30. https://doi.org/10.1080/10438599.2013.871167.Search in Google Scholar
Roelofs, M. R., S. E. Østbye, and E. E. Heen. 2017. “Asymmetric Firms, Technology Sharing and R&D Investment.” Experimental Economics 20 (3): 574–600. https://doi.org/10.1007/s10683-016-9500-5.Search in Google Scholar
Russo, A., M. Catalano, E. Gaffeo, M. Gallegati, and M. Napoletano. 2007. “Industrial Dynamics, Fiscal Policy and R&D: Evidence from a Computational Experiment.” Journal of Economic Behavior & Organization 64 (3): 426–47. https://doi.org/10.1016/j.jebo.2006.06.016.Search in Google Scholar
Silipo, D. B. 2005. “The Evolution of Cooperation in Patent Races: Theory and Experimental Evidence.” Journal of Economics 85 (1): 1–38. https://doi.org/10.1007/s00712-005-0115-0.Search in Google Scholar
Silipo, D. B., and A. Weiss. 2005. “Cooperation and Competition in an R&D Market with Spillovers.” Research in Economics 59 (1): 41–57. https://doi.org/10.1016/j.rie.2004.12.003.Search in Google Scholar
Struwe, N., E. Blanco, and J. M. Walker. 2022. “Competition Among Public Good Providers for Donor Rewards.” Experimental Economics: 1–29. https://doi.org/10.1007/s10683-022-09766-7.Search in Google Scholar
Suetens, S. 2004. Literature Review: R&D Cooperation in Oligopoly with Spillovers: An Experimental Economics Approach. Tilburg: Mimeo.Search in Google Scholar
Suetens, S. 2005. “Cooperative and Noncooperative R&D in Experimental Duopoly Markets.” International Journal of Industrial Organization 23 (1): 63–82. https://doi.org/10.1016/j.ijindorg.2004.11.004.Search in Google Scholar
Wu, J. 2012. “Technological Collaboration in Product Innovation: The Role of Market Competition and Sectoral Technological Intensity.” Research Policy 41 (2): 489–96. https://doi.org/10.1016/j.respol.2011.09.001.Search in Google Scholar
Zúñiga-Vicente, J. Á., C. Alonso-Borrego, F. J. Forcadell, and J. I. Galán. 2014. “Assessing the Effect of Public Subsidies on Firm R&D Investment: A Survey.” Journal of Economic Surveys 28 (1): 36–67. https://doi.org/10.1111/j.1467-6419.2012.00738.x.Search in Google Scholar
Supplementary Material
This article contains supplementary material (https://doi.org/10.1515/bejeap-2022-0138).
© 2023 Walter de Gruyter GmbH, Berlin/Boston
