This paper investigates government subsidy games for private sector research and development (R&D) in a two-country two-firm intra-industry trade model. Two funding structures are compared: “cost sharing” vs. “reward for performance.” Both the theoretical evidence and the results of a...

The Advanced Technology Program (ATP) of the National Institute for Standards and Technology (NIST) subsidizes the R&D expenditure of large single firms at a maximum rate of 40%. The theoretical analysis herein of a monopoly innovator suggests that this subsidy rate is about socially optimal...