Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289051 
Year of Publication: 
2020
Citation: 
[Journal:] Review of Industrial Organization [ISSN:] 1573-7160 [Volume:] 57 [Issue:] 3 [Publisher:] Springer US [Place:] New York, NY [Year:] 2020 [Pages:] 579-606
Publisher: 
Springer US, New York, NY
Abstract: 
This paper focuses on the question of whether or not a reduction of the knowledge barrier is good for welfare. Based on a dynamic monopoly setting with simultaneous investment decisions in process as well as in product Research & Development (R&D), we show that a reduction of the knowledge barrier has ambiguous welfare consequences: due to a lower knowledge barrier, product quality and welfare increase in the short-run. However, this may not necessarily be the case in the long-run. One reason is that a positive long-lasting knowledge barrier shock triggers the monopolist sub-optimally to reduce its product R&D investments today and in the future at the cost of future product quality. This in turn may reduce welfare. Accordingly, to realize the first-best level of product quality, the long-run optimal R&D subsidy rate for product innovations increases with a reduction of the knowledge barrier.
Subjects: 
Process and product innovation
Learning by doing
Knowledge spillovers
Optimal taxation
Dynamic monopoly analysis
JEL: 
D4
D6
D9
C4
L1
O3
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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