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| Format: | Preprint |
| Published: |
2025
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2511.17251 |
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| _version_ | 1866911278753120256 |
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| author | Konrad, Lucas Darius |
| author_facet | Konrad, Lucas Darius |
| contents | In this paper I propose a micro-based innovation driven general equilibrium growth-model allowing for endogenous entry and exit as well as three different types of research. I make the novel distinction between three types of firms, namely basic and applied research where applied research is again differentiated into high and low type research to account for a heterogeneous firm environment. I further propose a new and flexible way to model basic research spillovers in this model class. While previous literature addresses the effect of R&D policies in general, my findings suggest, there is no optimal market solution in which basic research takes a noteworthy share. In order to counteract this undersupply and to take advantage of basic research spillovers, a sizable basic research subsidy is required to sufficiently crowd-in basic research which then allows for a substantial increase in welfare. My findings also suggest the necessity for purely state-financed basic research to approach the social planner solution in a feasible manner. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2511_17251 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Basically Trapped -- A General Equilibrium Approach to the Undersupply of Basic Research in Free Markets Konrad, Lucas Darius Theoretical Economics In this paper I propose a micro-based innovation driven general equilibrium growth-model allowing for endogenous entry and exit as well as three different types of research. I make the novel distinction between three types of firms, namely basic and applied research where applied research is again differentiated into high and low type research to account for a heterogeneous firm environment. I further propose a new and flexible way to model basic research spillovers in this model class. While previous literature addresses the effect of R&D policies in general, my findings suggest, there is no optimal market solution in which basic research takes a noteworthy share. In order to counteract this undersupply and to take advantage of basic research spillovers, a sizable basic research subsidy is required to sufficiently crowd-in basic research which then allows for a substantial increase in welfare. My findings also suggest the necessity for purely state-financed basic research to approach the social planner solution in a feasible manner. |
| title | Basically Trapped -- A General Equilibrium Approach to the Undersupply of Basic Research in Free Markets |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2511.17251 |