Economic policies for process innovations from research joint ventures.

Abstract

Since U.S. policy makers and businesses are intensely concerned about maintaining competitiveness in technology with other countries, we should seek deeper understanding of the efficacy and nature of policies which are commonly encouraged or implemented for this purpose. Therefore I analyze firms which cooperate in cost-reducing R&D. (i.e., form research joint ventures (RJVs)). In Chapter I, I analyze the effects of RJVs on member firms' profits, non-member firms' profits, and consumers. I show that the higher the degree of technological spillovers, RJVs are more likely to be generally beneficial (i.e.,to all industry firms and consumers). Most analysis of RJVs in economic literature focuses on industry-wide RJVs. Thus my modelling of RJVs is more realistic and, therefore, fills a critical gap in the literature. Although an often-cited advantage of RJVs is the elimination of duplication of R&D efforts, few, if any, authors have analyzed this. I do this in Chapter II and find that, all else equal, having firms with more similar research opportunities (i.e., more potential for R&D duplication) form an RJV is more likely to be generally beneficial. This follows because, firms with similar research strengths have less private incentive to to R&D because they do not want to duplicate each other's R&D (because they lose spillover benefits). Thus, RJV firms are more likely to increase industry R&D spending because they can coordinate their activities to avoid duplication. This result runs counter to the notion that it is socially beneficial to have firms with different research strengths combine R&D efforts. In chapter III, I analyze a government's incentives to tax/subsidize domestic R&D in an N-firm, two-country model. I find that for generally "high" spillovers, a government has incentive to subsidize domestic R&D, and this not only increases domestic profits, but also foreign firms' profits and consumers' surplus. So there is no "beggar-thy-neighbor" effect of optimal government policy in this instance. Therefore, a central theme in this thesis is that proper R&D policies have the greatest potential benefit when spillovers are "high.".