The Link between Public Support and Private R&D Effort: What is the Optimal Subsidy?

Document de Treball XREAP 2011-09

45 Pages Posted: 14 Jun 2011

See all articles by Néstor Duch-Brown

Néstor Duch-Brown

Joint Research Centre - European Commission

Jose Garcia-Quevedo

Barcelona Institute of Economics (IEB); University of Barcelona - Faculty of Economic Science and Business Studies

Daniel Montolio

University of Barcelona - Faculty of Economic Science and Business Studies

Date Written: June 13, 2011

Abstract

The effectiveness of R&D subsidies can vary substantially depending on their characteristics. Specifically, the amount and intensity of such subsidies are crucial issues in the design of public schemes supporting private R&D. Public agencies determine the intensities of R&D subsidies for firms in line with their eligibility criteria, although assessing the effects of R&D projects accurately is far from straightforward. The main aim of this paper is to examine whether there is an optimal intensity for R&D subsidies through an analysis of their impact on private R&D effort. We examine the decisions of a public agency to grant subsidies taking into account not only the characteristics of the firms but also, as few previous studies have done to date, those of the R&D projects. In determining the optimal subsidy we use both parametric and nonparametric techniques. The results show a non-linear relationship between the percentage of subsidy received and the firms’ R&D effort. These results have implications for technology policy, particularly for the design of R&D subsidies that ensure enhanced effectiveness.

Keywords: R&D, public subsidies, evaluation

JEL Classification: O38, H32

Suggested Citation

Duch-Brown, Néstor and Garcia-Quevedo, Jose and Garcia-Quevedo, Jose and Montolio, Daniel, The Link between Public Support and Private R&D Effort: What is the Optimal Subsidy? (June 13, 2011). Document de Treball XREAP 2011-09, Available at SSRN: https://ssrn.com/abstract=1864192 or http://dx.doi.org/10.2139/ssrn.1864192

Néstor Duch-Brown (Contact Author)

Joint Research Centre - European Commission ( email )

Edificio Expo, C
Inca Garcilaso, 3
Sevilla, E-41092
Spain

Jose Garcia-Quevedo

Barcelona Institute of Economics (IEB) ( email )

Av. Diagonal 690
Barcelona, E-08034
Spain

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Barcelona
Spain

Daniel Montolio

University of Barcelona - Faculty of Economic Science and Business Studies ( email )

Av. Diagonal, 690
Torre 4 Planta 2
Barcelona, 08034
Spain

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