This article compares two research funding policies in a cooperative or noncooperative R&D setting: subsidising private research (Spr) and subsidising public research (Spu). We show that the Spr policy induces better performance than the Spu approach in terms of overall net surplus whether rms cooperate or not in R&D. Nevertheless, subsidising public research leads to greater R&D investment overall provided that the knowledge externalities from the public to the private research sector are not too high. The Spu policy is more eective in terms of research eorts when rms cooperate and subsidies are low.

Most OECD countries have chosen to support innovation by funding both private and public research activities. These policies aim to stimulate research and increase the stock of knowledge to boost competitiveness and economic growth. The existence of technological spillovers leads firms to