Incremental R&D Subsidies.
An Incremental Incentive Scheme (IIS) encourages some activity by rewarding an agent for overachieving a base level determined by past performance but not penalizing underachievement. We examine an IIS R&D subsidy in a dynamic model due to Grossman and Shapiro (1986). We show that the firm's optimal R&D path either cycles around the no-subsidy path or follows a "ratchet" pattern of small increases in R&D relative to the no-subsidy path. A simple condition determines which type of behavior occurs. Furthermore, we show that an IIS may be an inefficient method of encouraging R&D compared to a flat-rate subsidy. Copyright 1995 by Kluwer Academic Publishers
Year of publication: |
1995
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Authors: | Richardson, Martin ; Wilkie, Simon |
Published in: |
Journal of Regulatory Economics. - Springer. - Vol. 7.1995, 2, p. 161-75
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Publisher: |
Springer |
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