A BEJTE Topics article.

Abstract

We reconsider the justifications of the R&D subsidies of Spencer and Brander (1983), by allowing firms to form a research joint venture (RJV) and license innovations. If governments offer unconditional subsidies, an RJV is formed and the strategic benefits of R&D subsidies vanish. Nevertheless, governments subsidize their domestic firms to enhance their bargaining position in the joint venture subgame. If governments offer subsidies conditional on forming resp. not forming an RJV, the game has multiple equilibria: one that restores the Spencer and Brander result, and another in which governments induce the formation of an RJV by a combination of conditional taxes and subsidies.

Submitted: October 16, 2007 · Accepted: August 13, 2008 · Published: September 3, 2008

Recommended Citation

Fan, Cuihong and Wolfstetter, Elmar G. (2008) "Research Joint Ventures, Optimal Licensing, and the R&D Subsidy Policy," The B.E. Journal of Theoretical Economics: Vol. 8 : Iss. 1 (Topics), Article 20.
DOI: 10.2202/1935-1704.1432
Available at: http://www.bepress.com/bejte/vol8/iss1/art20