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Are Public and Private R&D Investments Complements or Substitutes?

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Abstract
We develop a general equilibrium model with heterogeneous firms à la Melitz (2003), where both the government and firms can invest into R&D to improve the country's technological potential. A higher technological potential raises the average productivity of firms, thus implying lower consumer prices, and eventually leads to a welfare gain. The government's public and firms' private investments are modelled in a three-stage game, in which the government in the first stage invests into a basic research level, and then firms conduct private R&D building on this publicly provided 'technology' in the second stage. We find that private R&D investments are hump-shaped with respect to the basic research level. For lower levels public and private investments are complements, while for higher levels they are substitutes.

Suggested Citation

  • Bohnstedt, Anna, 2014. "Are Public and Private R&D Investments Complements or Substitutes?," Ruhr Economic Papers 485, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:485
    DOI: 10.4419/86788551
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    References listed on IDEAS

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    Cited by:

    1. Thomas H. W. Ziesemer, 2021. "The Effects of R&D Subsidies and Publicly Performed R&D on Business R&D: A Survey," Hacienda Pública Española / Review of Public Economics, IEF, vol. 236(1), pages 171-205, March.
    2. Becker, Lasse & Bizer, Kilian, 2015. "Federalism and innovation support for small and medium-sized enterprises: Empirical evidence in Europe," University of Göttingen Working Papers in Economics 245, University of Goettingen, Department of Economics.

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    More about this item

    Keywords

    heterogeneous firms; public and private R&D investments; basic research; innovation;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • H4 - Public Economics - - Publicly Provided Goods

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