TY  - RPRT
        AU  - Lu, Hao
AU  - Fuentes, Claudia De
AU  - Milla, Joniada
AU  - Ahmadi, Soheil
        TI  - Government Subsidies as a Risk-Sharing Policy Tool in Innovation Investment
        PY  - 2022/Nov/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 15725
        UR  - https://www.iza.org/publications/dp15725
        AB  - Current literature on the impact assessment of government innovation subsidies is mainly empirical driven and lacks an overarching theoretical model to explain the conditions under which government subsidies create positive additionalities on private R&D investment. In this paper, we present a theoretical model that treats government subsidies as a risk-sharing vehicle for private R&D activities. More importantly, we argue that positive additionalities will be more likely to occur when the subsidies are allocated based on the risk-reward condition of the project. In addition, we show that the risk-sharing effect of government subsidies is influenced by a firm's absorptive capacity and the asset specificity of the project. By showing the conditions under which subsidies create positive additionality, we provide guidance to policymakers on how to improve the effectiveness of government support for innovation.
        KW  - government subsidy
KW  - additionality
KW  - R&D and innovation
KW  - the risk-sharing model
KW  - absorptive capacity
KW  - asset specificity
        ER  -