While a large literature has emerged in recent years analysing research joint ventures (RJVs), virtually all of it operates in a framework where a given R&D spillover occurs when firms act non-cooperatively outside the RJV, and another given spillover parameter operates when firms cooperate within the RJV. Research Fellows Yannis Katsoulacos and David Ulph argue that the problem with these models is that they conflate the decision on the amount of R&D with the sharing of R&D. Consequently, in Discussion Paper No. 1407, they treat these spillovers as endogenous and controlled by firms. They then show that it is essential to make a number of distinctions previously ignored in the literature.

In particular, their analysis distinguishes between the amount of research firms do and the amount of spillovers they generate. It is shown that coordination can arise without cooperation while cooperation need not induce information sharing. In many cases, however, it is shown to be sufficient to allow cooperation in order to induce full information sharing/research coordination. In this case, the justification for a technology policy, in the form of an R&D subsidy, lies in encouraging firms to undertake more R&D. The analysis suggests that cooperative arrangements between firms may often produce too little R&D, and therefore R&D subsidies can be justified; not to correct the information problems, but to increase the amount of R&D firms choose to do.

Endogenous Information Spillovers and Technology Policy
Yannis Katsoulacos and David Ulph