Research and imitation in long-run growth

Governments have long subsidized both the development of knowledge (research) and the acquisition of knowledge (imitation). This raises some interesting questions. Why subsidize both activities? And if both activities are to be supported, how should subsidy rates for each be set? We develop a theory of long-run growth in which both the initial development of a body of knowledge (research) and its subsequent acquisition by others (imitation) are endogenously determined. Consequently, we are able to provide answers to these and other questions in the context of the model economy.