Abstract
Establishing a third-market model of international Cournot duopoly where home and foreign firms choose optimal R&D levels under demand uncertainty, this paper reexamines results on R&D subsidies proposed by Spencer and Brander [Review of Economic Studies 50 (1983): 707–722]. It is assumed that R&D subsidies consist of fixed and variable parts, demand uncertainty is of the additive type, and firms are risk averse. It is shown that signs of the effects of a change in a home fixed R&D subsidy are definitely determined, but those of a change in a home variable R&D subsidy are ambiguous, and, as a result, signs of optimal home R&D subsidies are also ambiguous even if the foreign R&D reaction curve is downward-sloping.
Similar content being viewed by others
References
Arrow, K. (1965):Aspects of the Theory of Risk-Bearing. Helsinki: Yrj Jahnsson Foundation.
Arvan, L. (1991): Flexibility versus Commitment in Strategic Trade Policy under Uncertainty: a Model of Endogenous Policy Leadership.Journal of International Economics 31: 341355.
Bagwell, K., and Staiger, R. (1994): The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries.Journal of International Economics 36: 133150.
Baron, D. (1971): Demand Uncertainty in Imperfect Competition.International Economic Review 12: 196208.
Brander, J., and Spencer, B. (1983): Strategic Commitment with R&D: the Symmetric Case.Bell Journal of Economics 14: 225235.
Caniglia, A. (1986): Variable versus Fixed Rate Subsidies: Are the Latter Necessarily Less Efficient?Public Finance Quarterly 14: 100106.
Coe, D., and Helpman, E. (1995): International R&D Spillovers.European Economic Review 39: 859887.
Dixit, A. (1986): Comparative Statics for Oligopoly.International Economic Review 27: 107122.
Holthausen, D. (1976): Input Choices and Uncertain Demand.American Economic Review 66: 94103.
Ishii, Y. (1979): On the Theory of Monopoly under Demand Uncertainty.Journal of Economics/Zeitschrift fr Nationalkonomie 39: 105118.
Kamien, M., Muller, E., and Zang, I. (1992): Research Joint Ventures and R&D Cartels.American Economic Review 82: 12931306.
Leland, H. (1972): Theory of the Firm Facing Uncertain Demand.American Economic Review 62: 278291.
Miyagiwa, K., and Ohno, Y. (1997): Strategic R&D Policy and Appropriability.Journal of International Economics 42: 125148.
Pratt, J. (1964): Risk Aversion in the Small and in the Large.Econometrica 32: 122136.
Sandmo, A. (1971): On the Theory of the Competitive Firm Under Price Uncertainty.American Economic Review 61: 6573.
Shivakumar, R. (1993): Strategic Trade Policy: Choosing between Export Subsidies and Export Quotas under Uncertainty.Journal of International Economics 35: 169183.
Spencer, B., and Brander, J. (1983): International R&D Rivalry and Industrial Strategy.Review of Economic Studies 50: 707722.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Ishii, Y. International cournol duopoly and R&D subsidies under demand uncertainly. Zeitschr. f. Nationalökonomie 72, 203–222 (2000). https://doi.org/10.1007/BF01676983
Published:
Issue Date:
DOI: https://doi.org/10.1007/BF01676983