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Journal of Economic Integration 2007 June;22(2) :320-338.
International R&D Tournaments and Industrial Policy

Haiwen Zhou 

Old Dominion University
Copyright ©2007 Journal of Economic Integration

This paper provides a unified approach to study the influence of uncertainty and spillovers on the direction of R&D policy when firms engage in international R&D competition. When the reward to the winner is exogenously given, it is shown that whether a government will tax or subsidize its firm is sensitive to the type of uncertainty that characterizes the R&D process. When the reward to the winner is endogenously determined by R&D spending, the direction of optimal policy is not only sensitive to the type of uncertainty, but also sensitive to the degree of spillovers.

JEL classification: F12, F13

Keywords: International R&D tournaments | Industrial policy | Uncertainty | Spillovers
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