GEP 12/03: Competitive and Harmonised R&D Policies for International R&D Alliances involving Asymmetric Firms

Summary

We consider R&D policies for international R&D alliances between heterogeneous firms. If firms coordinate their R&D and governments act independently, R&D taxes are optimal. But if policies are harmonised, no intervention is optimal.

Abstract

We examine research and development (R&D) policies when a national firm forms an R&D alliance with a foreign competitor. Firms differ in their R&D capabilities, and adopt a profit-sharing rule when R&D decisions are coordinated. National R&D tax/subsidy policies are set independently or harmonised. When firms coodinate their R&D decisions and governments choose R&D policies independently, R&D taxes are chosen. But there is no intervention if policies are harmonised. These policy outcomes affect the types of R&D alliance choosen. Agreements to share R&D information may be preferred to those combining coordination of R&D decisions and information sharing because of the R&D tax that coordination attracts.

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Authors

Rod Falvey and Khemarat Talerngsri Teerasuwannajak

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