THE SENSITIVITY OF STRATEGIC AND CORRECTIVE R-AND-D POLICY IN BATTLES FOR MONOPOLY

We characterize the role for R & D subsidies in export markets where R & D is an uncertain process and the winner of the R & D competition monopolizes the market. Investments are assumed to induce either first order or mean-preserving second order shifts in the distribution of a firm's costs or, reinterpreting the model as a patent race, a firm's discovery dates. We show that, regardless of which form the uncertainty takes, a national strategic incentive to subsidize R & D exists, but must be balanced against a national corrective incentive to tax R & D whenever a country has multiple firms involved in the R & D competition.