TY - JOUR AU - Staiger,Robert W. AU - Bagwell,Kyle TI - The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries JF - National Bureau of Economic Research Working Paper Series VL - No. 3236 PY - 1990 Y2 - January 1990 UR - http://www.nber.org/papers/w3236 L1 - http://www.nber.org/papers/w3236.pdf N1 - Author contact info: Robert W. Staiger Department of Economics Stanford University Landau Economics Building 579 Serra Mall Stanford, CA 94305-6072 Tel: 650/723-0533 Fax: 650/725-5702 E-Mail: rstaiger@stanford.edu Kyle Bagwell Department of Economics Stanford University Landau Economics Building 579 Serra Mall Stanford, CA 94305-6072 Tel: (650) 723-3251 E-Mail: kbagwell@stanford.edu AB - We evaluate the sensitivity of the case for an R&D subsidy in an export sector when the outcome of R&D is uncertain and when the resulting product market is oligopolistic. Investments in R&D are assumed to induce either first order or mean-preserving second order shifts in the distribution of a firm's costs, with firms then competing in either prices or quantities in the product market. When R&D reduces the mean of a firm's cost distribution in the particular sense of first order stochastic dominance, we find using standard models of product market competition that a national strategic basis for R&D subsidies exists, whether firms choose prices or quantities. This national strategic incentive to subsidize R&D must be balanced against the national corrective incentive to tax R&D that arises whenever the number of domestic firms exceeds one. However, when R & D preserves the mean but alters the riskiness of a firm's cost distribution in the sense of second order stochastic dominance, we find that the national strategic basis for R&D intervention completely disappears, while the national corrective incentive is now to subsidize R&D whenever the number of domestic firms exceeds one. We conclude that the crucial determinant of appropriate R&D policy is the nature of the R&D process itself. ER -