We investigate the use of subsidies to R&D, both in a mixed and
a private duopoly market. We show that the socially optimal R&D
subsidy is positive and increasing in the degree of spillovers both in
the private and the mixed duopoly, although it is lower for the former
than for the latter. We also nd support for the empirical claim that
privatization is followed by a scaling down of the R&D activity. A
comparative static analysis of welfare levels suggests that privatization
is welfare detrimental, which lends some support to the views against
the widespread adoption of privatization programs
