We study the equilibrium effects of innovation subsidies that reduce firms' innovation costs in a monopolistic competition model with firm heterogeneity in innovation capabilities and an industry-level resource constraint. Subsidies change product market competition and resource price, and further affect firms' innovation. We show a counterintuitive result: though subsidies lower innovation costs, high-capability firms may reduce their innovation. This finding implies that the demand curve for innovation investments of certain firms in equilibrium can be locally upward-sloping. We show that at the industry level, both average innovation input and output demonstrate inverted-U shaped responses to increasing subsidies but with differing turning points. Notably, an increase in average innovation input may be accompanied by a decrease in average innovation output. These findings cast doubts on the interpretation of existing empirical evidences on firm and industry responses to innovation subsidies, most of which assume away treatment effect heterogeneity and equilibrium feedbacks.

In this paper, we present findings from four separate studies using different data sources and methods to examine Chinese attitudes toward the United States amid the COVID-19 pandemic. The empirical results consistently indicate a marked and significant decline in Chinese attitudes toward the US between late 2019 and the end of 2022. Using a quasi-experimental design and granular survey data that exploit daily variations in public opinion, we offer additional evidence that the decline in Chinese attitudes toward the United States followed a distinct pattern not true for Chinese attitudes toward other countries. Specifically, the rise in Chinese unfavorability toward the United States closely corresponded to the heightened Chinese attention to the pandemic’s progression in the United States. These results collectively suggest a causal effect of COVID-19, shedding light on how public health crises, international relations, and media jointly shape the increasing enmity between the two great powers.