Beschreibung:
<jats:title>ABSTRACT</jats:title><jats:p>The paper develops a patent race model with a particular emphasis upon heterogeneity of competing R&D firms. It is demonstrated that R&D subsidies generate the <jats:italic>cleansing effect</jats:italic>
where relatively lower productivity firms drop out of the race and innovation accelerates due to expanded R&D investment by the remaining firms as well as new entrants with higher productivity than exiting firms.</jats:p>