Abstract My thesis focuses on technology transfer and innovation policy in a knowledge-based society. In particular, I analyse the firms’ incentives to invest in research and development (R&D), the transfer of technological knowledge to a rival and government stimulation of R&D investment. Further, I analyse the incentives to engage in R&D cooperation in different market structures. By coordinating R&D decisions the firms can internalize the externalities of their research effort, and thereby strengthen the incentives to perform R&D. The dissertation consists of three essays where I develop theoretical models within the subject of strategic R&D investment. As a consequence of externalities that arise when conducting R&D, the economic value to society often exceeds the economic benefits enjoyed by the innovating firms. Since the output of R&D investments is non-rival and only partially excludable, some of the knowledge also benefits their competitors and thereby reduces the incentive to engage in R&D activities. By coordinating these R&D activities the firms can internalize this externality. Knowledge created by one firm is typically not contained within that firm, and R&D spillovers occur when technological knowledge produced by one firm is transferred to other firms, both voluntarily and involuntarily. In my first paper I study how separation of ownership and management affects firms’ incentives to transfer technological knowledge voluntarily and without payment from a rival in a Cournot duopoly. The main finding is that strategic management does not necessarily increase the incentives to transfer technology, but it can change the adoption of technologies. In my next paper I study the effectiveness of public funding aimed at stimulating business performed R&D in a vertically related market. In particular, the focus of the analysis is how to set the policy instruments upstream and downstream in order to achieve an optimal level of innovation in the whole industry. I show that it is always optimal to subsidize the R&D activity of the upstream firm. Whether a tax or a subsidy is used in the downstream market depends upon its level of concentration. If there are few firms downstream, then it is always optimal to employ an R&D subsidy in this part of the market. However, if competition is sufficiently strong, then R&D activity downstream should be taxed. The optimal R&D policy implies a differentiation of the subsidy rates between the upstream and the downstream market. Moreover, subsidizing the upstream supplier has a greater effect on welfare than the stimulation of each of the downstream buyers. In my third paper I study strategic R&D alliances among asymmetric firms. I consider a market where some of the firms are active in research, while other firms do not conduct R&D. With non-innovative firms as technologically leading firms, the innovating firms invest in R&D to narrow the technological gap. On the other hand, with the technologically leading firms investing in R&D they expand their technological advantage. In the analysis I determine whether R&D cooperation leads to higher levels of R&D than R&D competition under different market structures. Cost asymmetries among firms seems to enlarge the interval of spillover rates where cooperative R&D secures greater R&D effort than competitive behaviour, and this depends on the number of firms that do not perform R&D or the number of firms that do not receive R&D spillover.
2. Michalsen, A.: 'R&D Policy in a Vertically Related Industry' (forthcomming paper in Economics of Innovation and New Technology).