The Role of Sunk Costs in the Decision to Invest in R&D

24 Pages Posted: 1 Dec 2009

See all articles by J. A. Máñez

J. A. Máñez

University of Valencia - Faculty of Economics

M. E. Rochina

University of Valencia - Department of Economic Analysis; University College London

Amparo Sanchis

University of Valencia - Department of Applied Economics II

J. A. Sanchis

University of Valencia - Department of Applied Economics II

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.

Suggested Citation

Máñez-Castillejo, Juan A. and Rochina-Barrachina, María Engracia and Sanchis, Amparo and Sanchis-Llopis, Juan Alberto, The Role of Sunk Costs in the Decision to Invest in R&D. The Journal of Industrial Economics, Vol. 57, Issue 4, pp. 712-735, December 2009. Available at SSRN: https://ssrn.com/abstract=1513604 or http://dx.doi.org/10.1111/j.1467-6451.2009.00398.x

Juan A. Máñez-Castillejo (Contact Author)

University of Valencia - Faculty of Economics ( email )

Valencia, E-46022
Spain

María Engracia Rochina-Barrachina

University of Valencia - Department of Economic Analysis ( email )

Campus de los Naranjos
46022 Valencia
Spain

University College London

Gower Street
London
United Kingdom

Amparo Sanchis

University of Valencia - Department of Applied Economics II ( email )

Edifici Departamental Oriental
Avda. dels Tarongers, S/N
46022 Valencia
Spain

Juan Alberto Sanchis-Llopis

University of Valencia - Department of Applied Economics II ( email )

Edifici Departamental Oriental
Avda. dels Tarongers, S/N
46022 Valencia
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
434
PlumX Metrics