The Role of Peer Effects in Firms' Usage of R&D Tax Exemptions
48 Pages Posted: 8 Feb 2020
Date Written: July 2019
Survey evidence suggests that firms are insufficiently aware of newly introduced R&D support measures due to the complexity of the public support landscape. As a result, adoption is slow and incomplete, implying that eligible firms leave money on the table. We hypothesize that a key coping mechanism involves firms relying on their peers’ behaviour to inform their own adoption decision. We test this hypothesis by analysing firms' first use of a newly-introduced R&D tax exemption scheme in Belgium. We identify endogenous peer effects in industry- and location-based peer groups by exploiting the intransitivity in firms’ networks as well as variation in peer group size. The results show that firms’ decisions to use R&D tax exemptions are influenced by the choices of their peers. The findings suggest that the efficacy of R&D policy can be improved by accounting for the structure of firm networks in the communication of new support initiatives.
Keywords: peer effects, information diffusion, R&D tax exemptions, innovation policy
JEL Classification: D83, D85, L14, O38
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