mirage-govt-resources

THE MIRAGE OF GOVERNMENT RESOURCES: WHEN SUBSIDIES CONSTRAIN, AND WHEN THEY LICENSE, FIRM RISK-TAKING Abstract: Government subsidies are central instruments of social policy, yet their consequences for the recipient firm remain poorly understood. Existing research focuses on resource incentives that direct firm activity to the social issue while overlooking how the structure of a subsidy (its explicit resource constraints and latent legitimacy pressures) shapes firm strategic decision-making. We theorize that these two mechanisms jointly reduce firm risk-taking by constraining the firm, and that an alternative pathway operates through firm-level moral licensing, where positive media attention credentials the firm, alleviating legitimacy pressure and licensing greater market-based risk-taking. We further develop boundary conditions based on local institutional context, showing that market logic environments amplify the credential while social logic environments suppress it. Using archival data on U.S. government subsidies matched to firm outcomes, we empirically validate both pathways. We then introduce a Logit-NK formal model (an original extension of the NK framework with an economically grounded utility specification) to generate the emergent distributional structure of these effects that mean-based methods cannot detect. This theory elaboration simulation, by uncovering the decision processes, identifies a diminished returns mirage: the appearance of broadly effective policy that masks structurally determined failure for the majority of licensed firms in concentrated institutional environments.