*We appreciate comments and suggestions from participants at the ESEM-EEA Conference (Madrid, 2004), EARIE Annual Conference (Berlin, 2004), the VII Encuentro de Economía Aplicada (Vigo, 2004), the XXVIII Jornadas de Economía Industrial (Granada, 2004) and from Pilar Beneito. We are also grateful to the Editor and two anonymous referees for many helpful comments. Financial support from the Spanish Ministry of Science and Technology (project numbers SEJ2005-05966 and SEJ2005-08783-C04-01), from the Generalitat Valenciana (project numbers GV2007/041 and GVACOM2007/132) and IVIE is gratefully acknowledged. We would also like to thank Fundación SEPI for providing the data. Usual disclaimers apply.
THE ROLE OF SUNK COSTS IN THE DECISION TO INVEST IN R&D*
Article first published online: 24 NOV 2009
© 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 57, Issue 4, pages 712–735, December 2009
How to Cite
MÁÑEZ, J. A., ROCHINA-BARRACHINA, M. E., SANCHIS, A. and SANCHIS, J. A. (2009), THE ROLE OF SUNK COSTS IN THE DECISION TO INVEST IN R&D. The Journal of Industrial Economics, 57: 712–735. doi: 10.1111/j.1467-6451.2009.00398.x
- Issue published online: 24 NOV 2009
- Article first published online: 24 NOV 2009
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.