Do Subsidies to Commercial R&D Reduce Market Failures - Microeconomic Evaluation Studies?

TLDR: In this paper, the authors review some recent micro-econometric studies evaluating effects of government-sponsored commercial R&D and pay particular attention to the conceptual problems involved Neither the firms receiving support, nor those not applying, constitute random samples Furthermore, those not receiving support may be affected by the programs due to spillover effects.

Abstract: A number of market failures have been associated with R&D investments and significant amounts of public money have been spent on programs to stimulate innovative activities In this paper, we review some recent microeconometric studies evaluating effects of government-sponsored commercial R&D We pay particular attention to the conceptual problems involved Neither the firms receiving support, nor those not applying, constitute random samples Furthermore, those not receiving support may be affected by the programs due to spillover effects which often are the main justification for R&D subsidies Constructing a valid control group under these circumstances is challenging, and we relate our discussion to recent advances in econometric methods for evaluation studies based on non-experimental data We also discuss some analytical questions, beyond these estimation problems, that need to be addressed in order to assess whether R&D support schemes can be justified For instance, what are the implications of firms' R&D investments being complementary to each other, and to what extent are potential R&D spillovers internalized in the market?