Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies

37 Pages Posted: 25 Jun 1999 Last revised: 27 Jun 2021

See all articles by Tor Jakob Klette

Tor Jakob Klette

(Deceased)

Jarle Møen

Norwegian School of Economics (NHH) - Department of Business and Management Science

Zvi Griliches

(Deceased)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1999

Abstract

A number of market failures have been associated with R&D investments and significant amounts of public money have been spent on programs to stimulate innovative activities. In this paper, we review some recent microeconomic studies evaluating effects of government sponsored commercial R&D. We pay particular attention to the conceptual problems involved. Neither the firms receiving support, nor those not applying, constitute random samples. Furthermore, those not receiving support may be affected by the programs due to spillover effects which often are a main justification for R&D subsidies. Constructing a valid control group under these circumstances is challenging, and we relate our discussion to recent advances in econometric methods for evaluation studies based on non-experimental data. We also discuss some analytical questions that need to be addressed in order to assess whether R&D support schemes can be justified. For instance, what are the implication of firms' R&D investments being complementary to each other, and to what extent are potential R&D spillovers internalized in the market?

Suggested Citation

Klette, Tor Jakob and Moen, Jarle and Griliches, Zvi, Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies (February 1999). NBER Working Paper No. w6947, Available at SSRN: https://ssrn.com/abstract=150072

Tor Jakob Klette

(Deceased)

N/A

Jarle Moen (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Zvi Griliches

(Deceased)

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