Technology policy and R&D cooperation in a global economy

Abstract

This thesis uses an international economic framework to analyze the strategic role that R&D cooperation can play in international competitions. There are two firms located in different countries and competing in output. Each firm can invest in cost-reducing R&D. There are R&D spillovers, meaning that a portion of the research results of each firm leaks out to the other firm. Two basic setups are considered. In the first setup, one of the firms benefits from an R&D subsidy from its government. In the second setup, firms collaborate in R&D. Multi-stage game-theoretic models are adopted, and the equilibrium concept used is subgame perfectness1[36]. The two setups are compared in terms of innovation, profits, and welfare. Moreover, the impact of spillovers on firms' and the government's decisions are considered. It is found that the subsidy declines with spillovers, because spillovers reduce the benefit of the innovation to the domestic firm. The subsidy boosts R&D investment by the domestic firm, because it reduces the net cost of R&D. (Abstract shortened by UMI.) 1Subgame perfectness is a requirement that decisions be rational at every stage of the game.