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

Juan A. Mañez, María E. Rochina‐barrachina, Amparo Sanchis-Llopis and Juan A. Sanchis
Authors registered in the RePEc Author Service: Maria Engracia Rochina Barrachina and Juan A. Sanchis Llopis ()

Journal of Industrial Economics, 2009, vol. 57, issue 4, 712-735

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.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jindec:v:57:y:2009:i:4:p:712-735

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