ON THE IMPACTS OF R&D SUPPORT AND ON SPECIALIZATION IN THE PRODUCTION OF NEW KNOWLEDGE

This study considers situations in which specialized innovators and incumbent manufacturers trade on innovations. Manufacturers also invest in their own R&D, and only if they are unsuccessful do they go to the outside market for innovations. We then consider the impacts of public R&D support and show that the desired direct effect on R&D investments or on the number of new innovators easily crowds out in the form of indirect market repercussions. We also show that an industry's natural growth does not induce manufacturers to specialize in either purely in-house or in purely out-house provision of new knowledge.