Abstract
Government subsidies can supplement R&D investment within pharmaceutical firms and strengthen industry knowledge spillovers effectively. Based on the inter-firm spillovers, a differential game model is established to investigate the government subsidy strategies under the different innovative drug R&D strategies of pharmaceutical firms. With the Hamilton-Jacobi-Bellman equitation, the optimal R&D investment, the pharmaceutical technical levels, and the optimal benefits are obtained under the strategies of no pharmaceutical firms conduct R&D innovation, one side innovates alone and R&D cooperation. It can be concluded that the R&D investment of pharmaceutical firms and the effort level of the government is positively related to the technical level and their comprehensive benefits, while it is a negative correlation to the cost coefficient. In addition, an increase in spillover coefficient produces an increase in government subsidy. Furthermore, when the spillovers are low, the government should give a higher subsidy to the strategy of R&D cooperation. As the spillovers increase, the government should allocate more subsidies to pharmaceutical firm who conduct independent R&D of innovative drugs.
Highlights
Innovative drugs has been defined as the drugs with proprietary intellectual property rights
Government subsidies are an effective supplement to the firm’s internal R&D investment [2], at the same time, the existence of spillovers has led to government subsidy policies could not effectively promoting pharmaceutical firms to carry out innovative drug R&D activities
Huang: Government Subsidy Strategy for Innovative Drug R&D Based on the Inter-Firm Spillovers to carry out R&D innovation and improve the overall innovation ability of China’s pharmaceutical industry
Summary
Innovative drugs has been defined as the drugs with proprietary intellectual property rights. Government subsidies are an effective supplement to the firm’s internal R&D investment [2], at the same time, the existence of spillovers has led to government subsidy policies could not effectively promoting pharmaceutical firms to carry out innovative drug R&D activities. Huang: Government Subsidy Strategy for Innovative Drug R&D Based on the Inter-Firm Spillovers to carry out R&D innovation and improve the overall innovation ability of China’s pharmaceutical industry. Scholars have studied government subsidies and firm decisions in various fields, the effectiveness of government subsidies is an area of ongoing research with few conclusive results. This paper aims to base on the inter-firm spillovers, a differential game model is established to investigate the government subsidy strategies under the different innovative drug R&D strategies of pharmaceutical firms. The rest of the paper is organized in such a way that the second part is the model description, the third part describes the R&D strategies of pharmaceutical firms, the fourth part is comparative and analysis, the fifth part of the paper is the conclusion and policy implications and provides suggestions for future research
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