GROWTH, R&D AND WELFARE: THE ROLE OF PUBLIC POLICY

In: Scottish journal of political economy: the journal of the Scottish Economic Society, Band 53, Heft 4, S. 447-460

Abstract

ABSTRACTThis paper analyzes the normative side of an R&D growth model in which market structure and growth are jointly determined in the equilibrium of a one‐sector economy under monopolistic competition. We find that a distortion in the allocation of R&D, namely the presence of technological spillovers between firms, generates two market failures: insufficient growth and excessive entry of firms. We show that this result is driven by the interplay between market structure and growth. A simple tax/subsidy scheme to support the efficient solution is proposed.