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Quantifying Sunk Costs and Learning Effects in R&D Persistence

Juan A. Mañez and James H. Love
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James H. Love: Unviersity of Leeds

No 1920, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper analyzes and quantifies the fundamental factors that are likely to cause persistence in performing R&D activities: the existence of sunk costs associated with R&D activities and the process of learning that characterizes this type of activity. We estimate our model with Spanish manufacturing firms for the period 1991-2014. By decomposing the effects of sunk costs and learning effects, we find that both are important determinants of R&D persistence, and that failing to allow for learning systematically overestimates sunk cost effects. Both large firms and SMEs benefit from direct and indirect (via productivity) effects of R&D experience, but in large firms this is more likely to be manifest through productivity improvements while in smaller firms the effect is more skewed towards a direct effect on R&D likelihood. Further, our results suggest that whereas the impact of sunk costs in R&D persistence is greater for large firms than for SMEs, the scope for direct learning from continuous R&D engagement is greater for SMEs than for larger firms.

Keywords: R&D persistence, sunk costs; learning effects (search for similar items in EconPapers)
JEL-codes: O32 L60 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-eff, nep-eur, nep-ind, nep-ino, nep-sbm and nep-tid
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ftp://147.156.210.157/RePEc/pdf/eec_1920.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:eec:wpaper:1920

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