THE SENSITIVITY OF STRATEGIC AND CORRECTIVE RESEARCH-AND-DEVELOPMENT POLICY IN OLIGOPOLISTIC INDUSTRIES

We evaluate the case for R&D subsidies in export sectors when the outc ome of R&D is uncertain and the product market is oligopolistic. When R&D reduces expected costs in the particular sense of first-order stoc hastic dominance, a national strategic basis for R&D subsidies exists, whether firms choose prices or quantities. This must be balanced agai nst a corrective incentive to tax R&D whenever the number of domestic firms exceeds one. However, when R&D increases the riskiness of the co st distribution as well, the results may switch: there emerges a strat egic incentive to tax and a corrective incentive to subsidize R&D.