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Money for nothing: How firms have financed R&D-projects since the Industrial Revolution

  • Bakker, Gerben

We investigate the long-run historical pattern of R&D-outlays by reviewing aggregate growth rates and historical cases of particular R&D projects, following the historical-institutional approach of Chandler (1962), North (1981) and Williamson (1985). We find that even the earliest R&D-projects used non-insignificant cash outlays and that until the 1970s aggregate R&D outlays grew far faster than GDP, despite five well-known challenges that implied that R&D could only be financed with cash, for which no perfect market existed: the presence of sunk costs, real uncertainty, long time lags, adverse selection, and moral hazard. We then review a wide variety of organisational forms and institutional instruments that firms historically have used to overcome these financing obstacles, and without which the enormous growth of R&D outlays since the nineteenth century would not have been possible.

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Article provided by Elsevier in its journal Research Policy.

Volume (Year): 42 (2013)
Issue (Month): 10 ()
Pages: 1793-1814

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Handle: RePEc:eee:respol:v:42:y:2013:i:10:p:1793-1814
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