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Incremental R&D subsidies (1995)

Richardson, Martin ; Wilkie, Simon

Springer

Journal of regulatory economics 7 (1995), S. 161-175

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ISSN: 1573-0468

Source: Springer Online Journal Archives 1860-2000

Topics: Economics

Notes: Abstract An Incremental Incentive Scheme (IIS) encourages some activity by rewarding an agent for overachieving a base level determined by past performance but not penalizing underachievement. We examine an IIS R&D subsidy in a dynamic model due to Grossman and Shapiro (1986). We show that the firm's optimal R&D path either cycles around the no-subsidy path or follows a “ratchet” pattern of small increases in R&D relative to the no-subsidy path. A simple condition determines which type of behavior occurs. Furthermore, we show that an IIS may be an inefficient method of encouraging R&D compared to a flat-rate subsidy.

Type of Medium: Electronic Resource

URL: http://dx.doi.org/10.1007/BF01062689

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