Chapter 14: Optimal R&D investment tax credits under mean reversion return.

This chapter assumes that the return to R&D capital is driven by a technological factor that follows a mean-reverting process. R&D capital also exhibits both irreversibility and externality through the learning-by-doing effect. The optimal paths for R&D capital under both the decentralized and the centralized economy are derived and then compared. It is found that an equal rate of investment tax credits should be given to both costlessly reversible investments and irreversible ones, and this common rate is unrelated to the parameters that characterize the mean-reverting process. [ABSTRACT FROM AUTHOR]