R&D and Subsidy Policy with Imperfect Project Classification

Thomas Gehrig; Rune Stenbacka

doi:10.1016/j.econlet.2022.110966

R&D and Subsidy Policy with Imperfect Project Classification

Thomas Gehrig, Rune Stenbacka

Department of Finance

Publications: Contribution to journal › Article › Peer Reviewed

Abstract

We characterize optimal subsidies for firms facing limitations in their ability to correctly classify risky R&D projects. We demonstrate that the optimal subsidy is an increasing function of firms’ ability to reduce type-I errors in accepting projects with a success potential, and a decreasing function in their type-II error of adopting projects with no success potential. Moreover, the optimal subsidy is decreasing in the informational advantage regarding the assessment of project viability of private firms relative to the government.

Original language	English
Article number	110966
Journal	Economics Letters
Volume	222
Early online date	Jan 2023
DOIs	https://doi.org/10.1016/j.econlet.2022.110966
Publication status	Published - Jan 2023

Austrian Fields of Science 2012

502013 Industrial economics
502014 Innovation research

Keywords

Imperfect screening
R&D
Subsidy policy

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.econlet.2022.110966Licence: CC BY 4.0

Cite this

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abstract = "We characterize optimal subsidies for firms facing limitations in their ability to correctly classify risky R\&D projects. We demonstrate that the optimal subsidy is an increasing function of firms{\textquoteright} ability to reduce type-I errors in accepting projects with a success potential, and a decreasing function in their type-II error of adopting projects with no success potential. Moreover, the optimal subsidy is decreasing in the informational advantage regarding the assessment of project viability of private firms relative to the government.",

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R&D and Subsidy Policy with Imperfect Project Classification

Abstract

Austrian Fields of Science 2012

Keywords

UN SDGs

Access to Document

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