Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76204
Authors: 
Darai, Donja
Großer, Jens
Trhal, Nadja
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Socioeconomic Institute, University of Zurich 0905
Abstract: 
This paper studies the effects of patents and subsidies on R&D investment decisions. The theoretical framework is a two-stage game consisting of an investment and a market stage. In equilibrium, both patents and subsidies induce the same amount of R&D investment, which is higher than the investment without governmental incentives. In the first stage, the firms can invest in a stochastic R&D project which might lead to a reduction of the marginal production costs and in the second stage, the firms face price competition. Both stages of the game are implemented in a laboratory experiment and the obtained results support the theoretical predictions. Patents and subsidies increase investment in R&D and the observed amounts of investment in the patent and subsidy treatment do not differ significantly across both instruments. However, we observe overinvestment in all three treatments. Observed prices in the market stage converge to equilibrium price levels.
Subjects: 
R&D investment
oligopoly
patents
subsidies
experiment
JEL: 
C90
L13
O31
Document Type: 
Working Paper

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