POLICY ON INTERNATIONAL RESEARCH-AND-DEVELOPMENT COOPERATION - SUBSIDY OR TAX

In this paper we derive the non-cooperative, optimal policy towards in ternational R&D cooperation. Two types of R&D cooperation are consider ed: collaboration and coordination. When firms cooperate, the familiar strategic behavior, which prevails in R&D competition, is reduced, or eliminated, or even completely reversed. However, we prove that R&D s ubsidy is still an optimal policy for individual governments in the ca se of R&D coordination and, more strikingly, the subsidies are larger for higher degrees of coordination. Government policies do not help th e firms to commit. In the case of R&D collaboration, both R&D subsidy and tax are possible. With linear demands, however, tax is never optim al; moreover, we show that the optimal policy is subsidy regardless of the strategic nature (substitute or complement) of the strategy varia bles, a result that contradicts the traditional wisdom. (C) 1998 Elsev ier Science B.V. All rights reserved.