Policy on international R&D cooperation : subsidy or tax?

Larry D. QIU*, Zhigang TAO

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

38 Citations (Scopus)


In this paper we derive the non-cooperative, optimal policy towards international R&D cooperation. Two types of R&D cooperation are considered: collaboration and coordination. When firms cooperate, the familiar strategic behavior, which prevails in R&D competition, is reduced, or eliminated, or even completely reversed. However, we prove that R&D subsidy is still an optimal policy for individual governments in the case of R&D coordination and, more strikingly, the subsidies are larger for higher degrees of coordination. Government policies do not help the firms to commit. In the case of R&D collaboration, both R&D subsidy and tax are possible. With linear demands, however, tax is never optimal; moreover, we show that the optimal policy is subsidy regardless of the strategic nature (substitute or complement) of the strategy variables, a result that contradicts the traditional wisdom.
Original languageEnglish
Pages (from-to)1727-1750
Number of pages24
JournalEuropean Economic Review
Issue number9
Publication statusPublished - 1 Nov 1998
Externally publishedYes

Bibliographical note

The authors benefit from presentation in the workshop of HKUST and the WEA International Pacific Rim Conference held in 1996 (Hong Kong).


  • R&D
  • Cooperation
  • Collaboration
  • Coordination
  • Spillovers
  • Strategic motive
  • Coordination motive
  • Subsidy
  • Tax

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