| Author (Person) | Nicolaides, Phedon |
|---|---|
| Series Title | Intereconomics |
| Series Details | Vol.48, No.2, March-April 2013, p99-105 |
| Publication Date | March 2013 |
| ISSN | 0020-5346 |
| Content Type | Journal | Series | Blog |
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The European Commission is reforming state aid rules. An important element of the reform is to prevent the granting of excessive subsidies. This paper shows that the determination of the optimum subsidy for research is difficult. What appears to be the socially optimum level of research effort depends on the benchmark of comparison and whether this benchmark is the situation before subsidies or the situation after subsidies. In the presence of asymmetric information, policy makers should induce firms to reveal their true costs and should grant subsidies to the relatively more efficient firms by allocating subsidies not on a first-come-firstserve basis but through a competitive process. However, competitive selection of subsidy recipients is not a panacea as it may not be possible to be effectively used in all cases and for all research programmes. This is because in principle public subsidies should support those programmes with the largest value for society, rather than with the lowest costs. Although this article focuses on R&D, its findings are relevant to any subsidy whose aim is to remedy market failure caused by positive externalities. [Full text of articles can be found in the Intereconomics Archive two years after the initial publication] |
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| Subject Categories | Culture, Education and Research, Internal Markets |
| Countries / Regions | Europe |
