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THE ROLE OF SUNK COSTS IN THE DECISION TO INVEST IN R&D -super-*

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  • JUAN A. M��EZ
  • MAR�A E. ROCHINA-BARRACHINA
  • AMPARO SANCHIS
  • JUAN A. SANCHIS

Abstract

We present a dynamic empirical model of a firm's R&D decisions that is consistent with the existence of sunk R&D costs, taking into account that these costs may differ between small and large firms, and among different technological regimes. We estimate a multivariate dynamic discrete choice model using firm-level data of Spanish manufacturing for 1990-2000. Conditional on firm heterogeneity and serially correlated unobservable factors, we find that R&D history matters. This true state dependence allows inferring the existence of sunk R&D costs associated with performing R&D. Sunk R&D costs are found to be higher for large, high-tech firms. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 57 (2009)
Issue (Month): 4 (December)
Pages: 712-735

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Handle: RePEc:bla:jindec:v:57:y:2009:i:4:p:712-735

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Cited by:
  1. Huergo, E. & Trenado, Mayte / M. & Ubierna, Andrés / A., 2013. "Impact of low-interest credits on business R&D expenditures: Spanish firms and CDTI loans for R&D projects," MPRA Paper 44221, University Library of Munich, Germany.
  2. Juan Antonio Máñez Castillejo & Dolores Añón Higón & Juan Alberto Sanchis Llopis, 2011. "The role of extensive and intensive margins in explaining corporate R&D growth: Evidence from Spain," Working Papers. Serie EC 2011-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Klaus Rennings & Peter Markewitz & Stefan Vögele, 2013. "How clean is clean? Incremental versus radical technological change in coal-fired power plants," Journal of Evolutionary Economics, Springer, vol. 23(2), pages 331-355, April.
  4. Antonelli, Cristiano & Crespi, Francesco & Scellato, Giuseppe, 2010. "Universities look beyond the patent policy discourse in their intellectual property strategies," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201010, University of Turin.
  5. Pere Arqué-Castells & Pierre Mohnen, 2012. "Sunk costs, extensive R&D subsidies and permanent inducement effects," CIRANO Working Papers 2012s-09, CIRANO.
  6. Huergo, E & Moreno, L, 2010. "Does history matter for the relationship between R&D, Innovation and Productivity?," MPRA Paper 23611, University Library of Munich, Germany.
  7. Busom, Isabel & Corchuelo, Beatriz & Martinez Ros, Ester, 2012. "Tax incentives or subsidies for R&D?," MERIT Working Papers 056, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  8. Erika Raquel Badillo & Rosina Moreno, 2014. "“Are R&D collaborative agreements persistent at the firm level? Empirical evidence for the Spanish case”," AQR Working Papers 201405, University of Barcelona, Regional Quantitative Analysis Group, revised Mar 2014.
  9. Pilar Beneito López & Amparo Sanchis Llopis & María Engracia Rochina Barrachina, 2009. "The role of learning in innovation: in-house versus externally contracted R&D experience," Working Papers. Serie EC 2009-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Isabel Busom & Beatriz Corchuelo & Ester Martinez Ros, 2012. "Tax incentives and direct support for R&D: What do firms use and why?," Working Papers wpdea1212, Department of Applied Economics at Universitat Autonoma of Barcelona.
  11. Pilar Beneito & María E. Rochina-Barrachina & Amparo Sanchis, 2013. "Ownership and cyclicality of firms’ R&D investment," Working Papers 1306, Department of Applied Economics II, Universidad de Valencia.
  12. Antonelli,Cristiano & Crespi, Francesco & Scellato, Giuseppe, 2012. "Inside innovation persistence: New evidence from Italian micro-data," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201213, University of Turin.
  13. Juan Antonio Máñez Castillejo & Amparo Sanchis Llopis & Juan A. Sanchis Llopis & María Engracia Rochina Barrachina, 2009. "Do process innovations boost SMEs productivity growth?," Working Papers. Serie EC 2009-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  14. M. Constanza Demmel & Juan A. Máñez & María E. Rochina-Barrachina & Juan A. Sanchis-Llopis, 2013. "Innovation and productivity: evidence for 4 Latin American countries manufacturing industry," Working Papers 1307, Department of Applied Economics II, Universidad de Valencia.
  15. Erika Raquel Badillo & Rosina Moreno, 2014. "“Are R&D collaborative agreements persistent at the firm level? Empirical evidence for the Spanish case”," IREA Working Papers 201410, University of Barcelona, Research Institute of Applied Economics, revised Mar 2014.

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