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

Listed author(s):
  • Gerben Bakker

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 Alfred Chandler (1962), Douglass North (1981) and Oliver 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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File URL: http://eprints.lse.ac.uk/54518/
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Paper provided by London School of Economics and Political Science, Department of Economic History in its series Economic History Working Papers with number 54518.

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Length: 65 pages
Date of creation: Jul 2013
Handle: RePEc:ehl:wpaper:54518
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