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