Abstract
Establishing a third-market model of international Cournot duopoly where home and foreign firms choose optimal R&D levels under demand uncertainty, this paper re-examines results on R&D subsidies proposed by Spencer and Brander [Review of Economic Studies 50 (1983): 707-722]. It is assumed that R&D subsidies consist of fixed and variable parts, demand uncertainty is of the additive type, and firms are risk averse. It is shown that signs of the effects of a change in a home fixed R&D subsidy are definitely determined, but those of a change in a home variable R&D subsidy are ambiguous, and, as a result, signs of optimal home R&D subsidies are also ambiguous even if the foreign R&D reaction curve is downward-sloping.
| Original language | English |
|---|---|
| Pages (from-to) | 203-222 |
| Number of pages | 20 |
| Journal | Journal of Economics/ Zeitschrift fur Nationalokonomie |
| Volume | 72 |
| Issue number | 2 |
| Publication status | Published - 2000 |
Keywords
- Demand uncertainty
- Fixed and variable R&D subsidies
- Risk-averse cournot duopoly
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics and Econometrics