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Government financing of r-d

Government financing of r-d

The simulations show that neither (maximising) additionality nor (minimising) redundancy can be an appropriate criterion for evaluation of R&D support policies. Projects with less additionality or more redundancy may generate greater welfare. We also show that both full grants and interest-free loans – which are typical of observed policies – perform much worse that the perfect policy, unless the price of public funds is quite low, or the externality is quite large. Shifting from full grants to interest-free loans generate a considerable welfare gain, unless public funds have become cheap.