The "Matthew effect" in R&D public subsidies: The Italian evidence

•This paper explores the causes and effects of persistence in the discretionary allocation of public subsidies to R&D.•We elaborate a distinction between vicious Matthew-effects and virtuous Matthew-effects.•The empirical results show that past grants increase the probability to access further funding.•The stable pattern in the access to R&D public subsidies by firms is associated with a ‘picking the winner’ strategy.

This paper explores the causes and effects of persistence in the discretionary allocation of public subsidies to R&D activities performed by private firms and elaborates a crucial distinction between vicious Matthew-effects and virtuous Matthew-effects. The latter identifies the role of dynamics increasing returns based upon accumulation of competence stemming from learning, learning to learn and knowledge cumulability. On the contrary vicious Matthew-effects lead to the substitution of private funds with public ones and represent an additional source of ‘government failure’ which has not been specifically addressed by previous literature. The empirical results show that past grants increase the probability to access further funding. Both the descriptive and econometric evidences confirm the persistent character of R&D subsidies, providing indication that some mechanisms related to a Matthew effect is at work for the observed firms. Moreover, the results suggest that the stable pattern in the access to R&D public subsidies by firms is associated with a ‘picking the winner’ strategy adopted by public authorities, which, positively contributed to the effectiveness of the policy instrument.