I. INTRODUCTION Virtually all industrialized nations encourage greater investment in research and development (RD in some cases government actually shares some RD Link, 2006; Tassey, 2005), resistance to such programs in general, and ATP specifically, makes sensational headlines and Congressional Testimony. Carnahan (2005) in a recent Forbes.com article claims that the notion of government-led industrial and technological development has been widely discredited. There has been public backlash against programs like ATP claiming that they are little more than corporate welfare. (2) Moore (1997) of Cato Institute, in testimony before a U.S. Senate subcommittee, (3) cites ATP as most egregious example of corporate welfare. His argument concerns efficiency of capital markets as: very essence of our modern-day capitalist system. The underlying theology of ATP is that government can identify companies and emerging technologies that warrant capital financing better than proven experts in financial markets can (Moore, 1997). The problem with this reasoning, in our view, is that Cato has a myopic view of societal benefits. It may well be that venture capitalists can identify companies and technologies that maximize profits, but there are other components of government's objective function. Just as importantly, this view does not take into account industries characterized by intra-industry international competition. The results of this article suggest that in a two-country world, home country benefits by subsidizing its domestic firm both when away country does not subsidize and when it does. Thus, what we call Dual subsidy regime, when both countries subsidize their local firm, is Nash equilibrium of subsidy game. The question of whether these equilibrium subsidies constitute corporate welfare hinges on whether governments' objective function (i.e., social surplus, sum of consumer surplus, profits, other domestic benefits, minus cost of subsidy) increases or decreases as compared to Base case of no subsidies at all. An RD Haaland and Kind, 2006). Neither is it hard to find examples where ATP funds projects for U.S. firms, funding agency in another country funds U.S. firm's foreign competitor, and both firms are being funded for similar technologies. For example, EU's Framework Program has awarded grants to EU firms in photonics industry since Framework's inception in 1984. …