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

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  • JUAN A. MÁÑEZ
  • MARÍA 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.

Suggested Citation

  • Juan A. Máñez & María E. Rochina-Barrachina & Amparo Sanchis & Juan A. Sanchis, 2009. "THE ROLE OF SUNK COSTS IN THE DECISION TO INVEST IN R&D -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 712-735, December.
  • Handle: RePEc:bla:jindec:v:57:y:2009:i:4:p:712-735
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