Abstract
What are the consequences of decentralized R&D policies within an economic union? Do non-cooperative policies generate too high R&D subsidies? To address such questions, we construct a simple model where firms invest in quality-improving R&D. With goods produced in different countries within an economic union, we compare non-cooperative and cooperative R&D policies. We show that non-cooperative policies imply too small R&D subsidies for horizontally differentiated goods and too high subsidies for close substitutes. Furthermore, small countries have less incentive to subsidize R&D than large countries, resulting in an unwarranted vertical product differentiation between goods produced in different countries.
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JEL no.
F12, F13, F15
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Haaland, J., Kind, H. Cooperative and Non-Cooperative R&D Policy in an Economic Union. Rev. World Econ. 142, 720–745 (2006). https://doi.org/10.1007/s10290-006-0090-8
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DOI: https://doi.org/10.1007/s10290-006-0090-8