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

Gerben Bakker

Economic History Working Papers from London School of Economics and Political Science, Department of Economic History

Abstract: 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.

Keywords: R&D-project financing–-history; R&D-financing institutions; sunk costs; historical R&D-project cost case studies Britain; United States (search for similar items in EconPapers)
JEL-codes: N20 N80 O21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-his, nep-ino and nep-ppm
Date: 2013-07
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Journal Article: Money for nothing: How firms have financed R&D-projects since the Industrial Revolution (2013) Downloads
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