R&D subsidy games: a cost sharing approach vs. reward for performance

Abstract

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 Monte Carlo simulation suggest that cost sharing is associated with higher social surplus and quality improvement because it prompts the firm to do more R&D. In a cost sharing program government and firm R&D are always complements. In the reward for performance program government and firm R&D may be complements, but are usually substitutes. In the Monte Carlo results the average firm contribution to R&D expenditure is actually negative with a reward for performance funding structure-raising the question of whether it might be construed as corporate welfare. Finally, the paper characterizes funding priorities for both structures in the case when subsidy dollars are scarce and when they are not.

Internal incentives for carbon emission reduction in a capital-constrained supply chain: A financial perspective

“…At present, CS has received some attention in academia as a means of alleviating pressure on capital costs. Existing studies have addressed various cost-sharing such as advertising inputs [39][40][41][42], R&D costs [12,43], and carbon reduction costs. In particular, in terms of carbon reduction costs, Dai et al [44] compared two cooperative models, cartel and costsharing, in an upstream manufacturer-led green supply chain, and found that the cost-sharing cooperative model could be more profitable for players and lead to peak profits across the supply chain.…”

Does the Supervision Mechanism Promote the Incentive Effects of Government Innovation Support on the R&D Input of Agricultural Enterprises?

“…Many firms hope to obtain R&D financial subsidies from the government instead of producing high-quality R&D, and innovation outcomes, which would send a false signal of actively implementing technological innovation to the outside world. That would inhibit the company's high-quality, independent innovation R&D activities, crowding out the company's independent R&D input [31,32]. Government subsidies would stimulate the demand for relevant production factors, leading to higher prices of production factors (such as the wage cost of R&D talents), which would increase the cost of R&D input, and also inhibit the willingness of enterprises to innovate, create a crowding-out effect on corporate R&D input [33].…”

The Government Subsidy Strategy Choice for Firm’s R&D: Input Subsidy or Product Subsidy?

“…The effectiveness of subsides in stimulating more R&D has been the topic of several scholarly papers [3][4][5][6][7]. Spencer and Brander [8] presented a theory of government intervention which provides an explanation for industrial strategy policy such as R&D or export subsidies in imperfectly competitive international markets.…”

“…Shin and Kim [6] analyzed the effect of government subsidy policies on creating an incentive for domestic firms to improve their product quality before exporting to an outside market. Gretz et al [4] investigated government subsidy games for private sector research and development in a two-country twofirm intraindustry trade model and compared two funding structures: cost sharing and reward for performance.…”