How to allocate R&D (and other) subsidies: an experimentally tested policy recommendation

This paper evaluates the typically applied rules for awarding R&D subsidies. We identify two sources of inefficiency: the selection based on a ranking of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use...

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Bibliographic Details
Published in:Research policy 2006, Vol.35 (9), p.1261
Main Authors: Giebe, Thomas, Grebe, Tim, Wolfstetter, Elmar
Format: Article
Language:English
Subjects:
Experimental economics
Subsidies
Online Access:Get full text
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Summary:This paper evaluates the typically applied rules for awarding R&D subsidies. We identify two sources of inefficiency: the selection based on a ranking of individual projects, rather than complete allocations, and the failure to induce competition among applicants in order to extract and use information about the necessary funding. In order to correct these inefficiencies we propose mechanisms that include some form of an auction in which applicants bid for subsidies. Our proposals are tested in a simulation and in controlled lab experiments. The results suggest that adopting our proposals may considerably improve the allocation.
ISSN:1873-7625
0048-7333
DOI:10.1016/j.respol.2006.01.008