Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212242 
Year of Publication: 
2013
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 2/2013
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We extend the theoretical basis of the empirical literature on the effects of R&D subsidies by providing an estimable model of strategic interaction among subsidy applicants, and public and private sector R&D financiers. Our model incorporates fixed R&D costs and a cost of external finance. We derive the optimal support rule. At the intensive (extensive) margin the costs of external funding reduce (increase) the optimal subsidy rate. We also establish necessary and sufficient conditions for the existence of additionality. It turns out that additionality at the intensive margin is less likely with large spillovers. Our results suggest that the relationship between additionality and welfare may not be straightforward.
Subjects: 
R&D
entrepreneurial finance
R&D subsidies
innovation policy
JEL: 
O38
O31
L32
H25
G28
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-001-7
Document Type: 
Working Paper

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