How to Allocate R&D (and Other) Subsidies: An Experimentally Tested Policy Recommendation

22 Pages Posted: 15 Dec 2005 Last revised: 31 Oct 2017

See all articles by Thomas Giebe

Thomas Giebe

Linnaeus University - Department of Economics and Statistics

Elmar Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Tim Grebe

Humboldt University at Berlin

Date Written: 2006

Abstract

This paper evaluates the typically applied rules for awarding R&D subsidies. We identify two sources of inefficiency: the selection based on a ranking of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use information about the necessary funding. In order to correct these inefficiencies we propose mechanisms that include some form of an auction in which applicants bid for subsidies. Our proposals are tested in a simulation and in controlled lab experiments. The results suggest that adopting our proposals may considerably improve the allocation.

Keywords: Research, Subsidies, Experimental Economics

JEL Classification: D44, D45, H25, O32, O38

Suggested Citation

Giebe, Thomas and Wolfstetter, Elmar G. and Grebe, Tim, How to Allocate R&D (and Other) Subsidies: An Experimentally Tested Policy Recommendation (2006). Research Policy, Vol. 35, 2006, Available at SSRN: https://ssrn.com/abstract=840465 or http://dx.doi.org/10.2139/ssrn.840465

Thomas Giebe (Contact Author)

Linnaeus University - Department of Economics and Statistics ( email )

Växjö, 351 06
Sweden

Elmar G. Wolfstetter

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://www2.hu-berlin.de/wt1wo/staff/wolfstetter/index.html

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Tim Grebe

Humboldt University at Berlin ( email )

School of Business and Economics
Spandauer Str. 1
D-10178 Berlin
Germany

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