D'Aspremont and Jacquemin's (1988) model is extended to study
alternative configurations of research agreements in a two--country integrated
world economy. Under unambiguous conditions on spillovers we show that:
1) Allowing national firms to cooperate in R\&D confers them an advantage
over foreign rivals, an effect similar to R\&D subsidies. 2) In a policy
game, each government would allow national cooperative agreements. 3) Contrary
to other trade policies which lead to a ``prisoners' dilemma'' ...
D'Aspremont and Jacquemin's (1988) model is extended to study
alternative configurations of research agreements in a two--country integrated
world economy. Under unambiguous conditions on spillovers we show that:
1) Allowing national firms to cooperate in R\&D confers them an advantage
over foreign rivals, an effect similar to R\&D subsidies. 2) In a policy
game, each government would allow national cooperative agreements. 3) Contrary
to other trade policies which lead to a ``prisoners' dilemma'' result,
welfare in both countries increases when they both allow R\&D cooperation.
4) Welfare is even higher if a generalized (international) coalition is
formed.
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