Conditions for government support of private research and development

Based on a model by Joglekar and Hamburg, this article examines the problem of identifying conditions for government support of private resource allocation to R&D. The behavioral assumptions of the original model are modified in two ways. First, the impact of a matching behavior only with respect to applied research and development on the relation between individually optimal spending and Pareto optimal spending is examined. The results are largely the opposite of the findings of Joglekar and Hamburg for investment in basic research. Second, the assumption of a competitive orientation for both kinds of research is integrated into the model. The results show the possibility of overinvestment in basic research. This leads to the conclusion that the industry’s behavior must be considered very carefully when governmental support instruments are implemented.