Public policy and R&D when research joint ventures are costly

In this paper we examine the role of policy when forming a R&D joint ventur e is costly. Contrary to previous studies, we document an active role for p ublic policy, since the interests of firms are not necessarily aligned with societal interests. The nature of policy, however, depends on the joint ve nture cost. If it is relatively low, then policy may call for subsidizing t he joint venture to encourage collaboration. If forming a joint venture is very costly, however, then there are cases where social welfare is improved if policy encourages R&D competition with no joint venture. IEL Classifica tion: D43, L13.