Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86810
Authors: 
den Butter, Frank A.G.
Jo, Seung-gyu
Year of Publication: 
2009
Series/Report no.: 
Tinbergen Institute Discussion Paper 09-012/3
Abstract: 
In the economics profession there is a fierce debate whether industrial and innovation policy should be targeted to specific sectors or firms. This paper discusses the welfare effects of such targeted policies from the perspective of strategic game theory of the firm. A theoretical case for picking winners through a preferential innovative policy is discussed in a third-market international trade model, which is shown to hold without evoking retaliation from foreign competitors. However, in practice information uncertainties remain a concern. The question whether in this case ‘backing winners’ is a wise policy option depends on the characteristics of the information asymmetries and on the extent the government is able to design selection procedures which minimize the transaction costs that may be caused from the market participants’ opportunistic behavior.
Subjects: 
Innovation policy
R&D subsidies
strategic trade policy
asymmetric information
spill-over effects
JEL: 
C73
F12
O24
O32
Document Type: 
Working Paper

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