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- Title
Optimal Industrial Policies in a Two-Sector-R&D Economy.
- Authors
Sorek, Gilad
- Abstract
This study characterizes welfare-enhancing industrial policies in a two-sector-R&D economy that incorporates both vertical and horizontal innovation. It elaborates on current welfare analyses of two-sector-R&D economies along two lines. First, it explores the welfare properties of non-drastic innovations whereas current analyses are confined to drastic innovations. It is shown that while the endogenously chosen size of drastic innovations is insufficient compared to social optimum, the size of non-drastic innovations may be excessive compared with the welfare maximizing one. Second, it explores welfare-enhancing policies designed to restrict innovators' market power, whereas current policy analyses focus on R&D and market-entry subsidies. The welfare-maximizing policies presented here combine proper limitations on innovators' market power along with a corresponding production tax (or subsidy). The limitations over innovators' market power are aimed to support the optimal innovation size, and the corresponding production tax is set to support the optimal product variety span.
- Subjects
INDUSTRIAL policy; MARKET power; POLICY analysis; CHANGE agents; SUBSIDIES
- Publication
B.E. Journal of Macroeconomics, 2021, Vol 21, Issue 1, p73
- ISSN
2194-6116
- Publication type
Article
- DOI
10.1515/bejm-2019-0197