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Journal of Applied Mathematics
Volume 2014, Article ID 536370, 9 pages
http://dx.doi.org/10.1155/2014/536370
Research Article

Government Preference and the Optimal Choice of R&D Subsidy Policy: Innovation Subsidy or Product Subsidy?

Institute of Industrial Economics, Jinan University, Guangzhou 510632, China

Received 29 November 2013; Accepted 1 January 2014; Published 12 February 2014

Academic Editor: Pei-ai Zhang

Copyright © 2014 Yongcong Yang. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Taking government preference into consideration, we consider a three-stage game model to compare the differences of innovation subsidy and product subsidy. The findings reveal that stronger preference to consumers’ welfare leads to higher subsidy rates, which benefit not only consumers but also firms. To choose between the two subsidies, the optimal choice varies with the changing preference of policymakers. According to the results of numerical simulation, product subsidy is better than innovation subsidy in most cases, while the government’s expenditure of the former one is larger than the latter one. Moreover, subsidizing firms symmetrically and asymmetrically has different effects on the consequences.