Industrial Policy and Firm Heterogeneity

Our concern in this paper is with firm-specific industrial policy. When R&D subsidies or taxes are differentiated among firms, the question arises as to which firms in an industry should receive such support. We analyze a situation where firms differ in their R&D technologies in two distinct ways: in the costs of performing R&D activities and in the output obtained from such activities. We find that the optimal firm-specific industrial policy is affected differently by the two sources of firm heterogeneity. Furthermore, a change in a firms R&D productivity has an ambiguous effect on the optimal policy towards the firm.

  • Authors: Pedro Luis Pita Barros & Tore Nilssen
  • Year: 1998
  • Organisation: Scandinavian Journal of Economics
  • Publisher: Blackwell Publishers
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