Subsidizing the R&D Expenditures for a Monopoly Firm: Advice for NIST

Abstract

The Advanced Technology Program (ATP) of the National Institute forStandards and Technology (NIST) subsidizes the R&D expenditure of large single firmsat a maximum rate of 40%. The theoretical analysis herein of a monopoly innovatorsuggests that this subsidy rate is about socially optimal when spillovers to other industriesare small and only incremental R&D expenditure is subsidized. The optimal subsidy whenthese two conditions are not met is also discussed. (O38)