When firms engaged in R&D are observably heterogenous (in size) and policymakers are able to condition policy on the observed heterogeneity, what is the optimal policy? This paper starts with a static two-stage duopoly model of R&D competition with uncertainty and finds it welfare enhancing to...

In a set of influential papers, Charles Jones (1995a, 1995b, 1999) argued that R&D based endogenous growth models are inconsistent with the data. He showed, in a very striking manner, that the scale effects prediction of early endogenous growth models (e.g. Romer, 1986 and 1990, Grossman and...