The complementarity of RJVs and R&D subsidies when absorptive capacity matters

This paper introduces a model of coordination of research paths into the theory of Research Joint Ventures (RJVs). A comparison of RJVs and licensing by non-cooperative firms shows that the latter may be unable to co-ordinate on complementary research paths whereas RJVs are always able to do this. This happens when the acquisition of absorptive capacity is costly. It is shown that the policies of promoting RJVs and subsidizing R&D are complementary, whereas either policy by itself may reduce welfare. Finally it is shown that costly absorptive capacity gives rise to a welfare loss that is very difficult to address.