We examine the question of whether a country benefits by subsidizing the Ramp;D of foreign owned monopoly firms. We allow for any proportion of foreign ownership; and, Ramp;D improves the product so that customers directly benefit. The policy implications are: (1) the optimal subsidy increases...

Most industrialized countries subsidize private sector R&D, even under some circumstances when the firm is owned by foreigners. The present paper, using a simple theoretical analysis of a monopoly firm selling only to the U.S. market, argues that such subsidies are welfare enhancing - as long,...