Industrial Policy and Firm Heterogeneity

CEPR Discussion Paper Series No. 1986

Posted: 4 Feb 1999

Date Written: October 1998

Abstract

Our concern is about a firm-specific industrial policy. When R&D subsidies or taxes are differentiated among firms, the question arises which firms in an industry should receive such support. We analyse a situation where firms differ in their R&D technologies in two distinct ways: they differ both in the costs of performing R&D activities and in the output obtained from such activities. The introduction of several domestic firms creates a corrective motive for government intervention with the firms' R&D activities in addition to Spencer and Brander's strategic motive. We find that the optimal firm-specific industrial policy is affected differently by the two sources of firm heterogeneity. Moreover, a change in a firm's R&D productivity has an ambiguous effect on the optimal policy towards the firm.

JEL Classification: F13, L52, O31

Suggested Citation

Pita Barros, Pedro Luis, Industrial Policy and Firm Heterogeneity (October 1998). CEPR Discussion Paper Series No. 1986. Available at SSRN: https://ssrn.com/abstract=141460

Pedro Luis Pita Barros (Contact Author)

Universidade Nova de Lisboa ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+351 21 383 3624 (Phone)
+351 21 388 6073 (Fax)

HOME PAGE: http://ppbarros.fe.unl.pt

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