Economics Commons^™

R&D Subsidies, Spillovers, And Privatization In Mixed Markets, Maria Jose Gil-Molto, Joanna Poyago-Theotoky, Vasileios Zikos

Joanna Poyago-Theotoky

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 …