Klarl, TorbenTorbenKlarlAntony, Jürgen2020-03-252020-03-2520202629-3994https://media.suub.uni-bremen.de/handle/elib/359810.26092/elib/201This paper focuses on the question whether or not a reduction of the knowledge barrier is good for welfare. Based on a dynamic monopoly setting with simultaneous investment decisions in process as well as in product Research & Development (R&D), we show that a reduction of the knowledge barrier has ambiguous welfare consequences: Due to a lower knowledge barrier, product quality and welfare increase in the short-run. However, this may not necessarily be the case in the long-run. One reason is that a positive long-lasting knowledge barrier shock triggers the monopolist to sub-optimally lower its product R&D investments today and in the future at the cost of future product quality. This in turn may reduce welfare. Accordingly, to realize the first-best level of product quality, the long-run optimal R&D subsidy rate for product innovations increase with a reduction of the knowledge barrier.29deProcess and product innovationlearning by doingknowledge spilloversoptimal taxationdynamic monopoly analysis330Artikel/Aufsatzurn:nbn:de:gbv:46-00108533-10