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Title: Industrial Policy and Firm Heterogeneity

Author(s): Pedro Pita Barros and Tore Nilssen

Publication Date: October 1998

Keyword(s): firm heterogeneity, Industrial Policy and R&D

Programme Area(s): Industrial Organization

Abstract: Our concern is about a firm-specific industrial policy. When R&D subsidies or taxes are differentiated among firms, the question arises which firms in an industry should receive such support. We analyse a situation where firms differ in their R&D technologies in two distinct ways: they differ both in the costs of performing R&D activities and in the output obtained from such activities. The introduction of several domestic firms creates a corrective motive for government intervention with the firms' R&D activities in addition to Spencer and Brander's strategic motive. We find that the optimal firm-specific industrial policy is affected differently by the two sources of firm heterogeneity. Moreover, a change in a firm's R&D productivity has an ambiguous effect on the optimal policy towards the firm.

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Bibliographic Reference

Barros, P and Nilssen, T. 1998. 'Industrial Policy and Firm Heterogeneity'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1986