Are Public and Private R&D Investments Complements or Substitutes?
20 Pages Posted: 27 Jul 2014
Date Written: May 25, 2014
Abstract
We develop a general equilibrium model with heterogeneous firms à la Melitz (2003), where both the government and firms can invest into R&D to improve the country’s technological potential. A higher technological potential raises the average productivity of firms, thus implying lower consumer prices, and eventually leads to a welfare gain. The government’s public and firms’ private investments are modelled in a three-stage game, in which the government in the first stage invests into a basic research level, and then firms conduct private R&D building on this publicly provided “technology” in the second stage. We find that private R&D investments are hump-shaped with respect to the basic research level. For lower levels public and private investments are complements, while for higher levels they are substitutes.
Keywords: Heterogeneous firms; public and private R&D investments; basic research; innovation
JEL Classification: O3, H4
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Trade, Wages, and Productivity
By Kristian Behrens, Giordano Mion, ...
-
Trade, Wages, and Productivity
By Kristian Behrens, Giordano Mion, ...
-
Trade, Wages, and Productivity
By Kristian Behrens, Giordano Mion, ...