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Government policy failure in public support for research and development
Haapanen, Mika; Lenihan, Helena; Mariani, Marco
Promoting Research and Development (R&D) and innovative activity is a key element of the EU Lisbon Agenda and is seen as playing a central part in stimulating economic development. In this paper we argue that, even allowing for benevolent policy-makers, informational asymmetries can lead to a misallocation of public support for R&D, hence government policy failure, with the potential to exacerbate preexisting market failures. Initially, we explore alternative allocation mechanisms for public support, which can help to minimize the scale of these government policy failures. Of these mechanisms (grants, tax credits, or allocation rules based on past performance), our results suggest that none is universally most efficient. Rather, the effectiveness of each allocation rule depends on the severity of financial constraints and on the level of innovative capabilities of the firms themselves. ACCEPTED peer-reviewed
Keyword(s): R&D; subsidy allocation; government policy failure; policy design; policy-makers; market failure; investment
Publication Date:
Type: Journal article
Peer-Reviewed: Yes
Language(s): English
Institution: University of Limerick
Citation(s): Policy Studies;35 (6), pp. 557-575
Publisher(s): Taylor and Francis Ltd
First Indexed: 2018-12-01 06:25:33 Last Updated: 2018-12-01 06:25:33