R&D Subsidization Effect and Network Centralization

By means of a simulated funding-agency/supported-firm stochastic dynamic game, this paper shows that the level of the subsidy provided by a funding (public) agency, normally used to correct for firm R&D shortage, might be severely underprovided. This is due to the "externalities" generated by the agency-firm strategic relationship, as showed by comparing two versions of the model: one assuming "rival" behaviors between companies and agency (i.e., the current setting), and one associated to the "cooperative" strategy (i.e. the optimal Pareto-efficient benchmark).