Government Subsidy Strategy for Innovative Drug R&D Based on the Inter-Firm Spillovers

Abstract

Government subsidies can supplement R&D investment within pharmaceutical firms and strengthen industry knowledge spillovers effectively. Based on the inter-firm spillovers, a differential game model is established to investigate the government subsidy strategies under the different innovative drug R&D strategies of pharmaceutical firms. With the Hamilton-Jacobi-Bellman equitation, the optimal R&D investment, the pharmaceutical technical levels, and the optimal benefits are obtained under the strategies of no pharmaceutical firms conduct R&D innovation, one side innovates alone and R&D cooperation. It can be concluded that the R&D investment of pharmaceutical firms and the effort level of the government is positively related to the technical level and their comprehensive benefits, while it is a negative correlation to the cost coefficient. In addition, an increase in spillover coefficient produces an increase in government subsidy. Furthermore, when the spillovers are low, the government should give a higher subsidy to the strategy of R&D cooperation. As the spillovers increase, the government should allocate more subsidies to pharmaceutical firm who conduct independent R&D of innovative drugs. INDEX TERMS Differential game, government subsidies, R&D of innovative drugs, spillovers.

Multihoming vs. Single-Homing Software: Compatibility or Competition?

“…In contrast, Fong et al showed that targeted promotions can effectively reduce consumer search activities and leads to a negative spillover effect on cross-firm purchase activity [15]. It is also common for the spillover effect to occur alongside technological progress such as drug research & development [16], big data knowledge [17], technology-based financial support systems [18], the finance and real estate industry [19], and especially in the IT market [10]. We investigate the spillover effect in the software competition economy; furthermore, we investigate how the spillover effect affects the compatibility and multihoming strategies the software firms adopt.…”

Research on government subsidy strategies for new drug R&D considering spillover effects

“…At present, few researches have been done on the government subsidy strategies of new drug R&D considering spillover effects. However, there are some researches focus on spillover effects of R&D activities and government subsidy strategies [ 10 – 38 ].…”

“…Appropriate spillover effects help promote enterprises' R&D activities. To explore the relationship between spillover effects and R&D decisions by constructing decision-making models is one of the areas where scholars focus on research [10][11][12][13][14][15][16][17]. For example, Liu, et al [10] established a differential game model to investigate the impact of spillover effects under the different innovative drug R&D strategies of pharmaceutical firms; Xu, et al [11] established a two-stage game model to discuss the impact of technology spillovers on enterprise R&D investment; Li [12] focused on the issue of supply chain carbon emission reduction, analyzed the vertical spillover effects of green technology R&D activities on the impact of emission reduction decision variables and profits of enterprises; Huang, et al [13] established a two-stage game model and discussed the optimal spillover level and the optimal innovation R&D strategy of pharmaceutical enterprises under the conditions of both internal and inter-company spillovers; Lin [14] studied a game theoretical model that captures the interactions among three parties, and then demonstrated that knowledge spillovers have a significant impact on the eco-innovation levels, the economic benefits, and the total social welfare of supply chain; Wang [15] comprehensively considered the double marginal effect of innovation and horizontal technology spillover effect between supply chain partners, and analyzed the influence of two modes of non-cooperative R&D and cooperative R&D on innovation activities of enterprises; Sun, et al [16] focused on cooperative R&D, analyzed the impact of different R&D models on R&D investment between upstream and downstream enterprises under the conditions of horizontal and vertical spillovers; Yu [17] established a three-stage game model and analyzed the impact of environmental policy on green technological innovation of enterprises in the presence of technology spillover effect.…”

“…Existing researches on spillover effects of R&D activities point out that the spillover effects of R&D activities can be divided into horizontal spillover effects and vertical spillover effects, it also provide the calculation methods of decision variables such as balanced output, profit, innovation input and social welfare [10][11][12][13][14][15][16][17][26][27][28][29][30][31]. Researches on government subsidy strategies are mainly applied in the field of green innovation.…”

Is It a Strategic Move to Subsidized Consumers Instead of the Manufacturer?

“…During past few decades, concerns related to environmental sustainability issues has been transformed from a trendy issue to a realistic priority for consumers, industry and government organization. Thus, green subsidy scheme becomes an emerging topic of interest for practitioners and academic researchers [41]- [44]. Mass media reports also supported that subsidy provided by national or local governments affects the growth of almost every industry.…”