DO SUBSIDIES TO COOPERATIVE RESEARCH-AND-DEVELOPMENT ACTUALLY STIMULATE RESEARCH-AND-DEVELOPMENT INVESTMENT AND COOPERATION

A popular view in the industrial policy debate is that cooperation among firms' R&D departments should be encouraged. The European Community, Japan and the US all subsidize research cooperatives. This study presents the first empirical test of the effectiveness of such subsidies using a database of competitors in 45 technological races. The results indicate that subsidies that require cooperation in the form of result-sharing agreements significantly increase the likelihood of cooperation, but they decrease incentives to conduct R&D. Subsidy programmes, such as EUREKA, that require cooperation but do not require result-sharing agreements do not increase the likelihood of cooperation. They do, however, increase incentives to conduct R&D somewhat, about to the same extent as subsidies that do not require cooperation.