Abstract
Using firm-level data on Spanish manufacturing firms we estimate a model of the firm's optimal R&D decisions (whether to perform R&D and how much to invest). We quantify the fixed (proper fixed costs plus firms' outside option) and sunk costs of R&D and find the former to be substantially higher than the latter. While sunk costs act as a barrier to entry into R&D for some firms, fixed costs are the binding obstacle for many more firms. Simulation based on the estimated model reveals that one-shot trigger subsidies cause a substantial increase in both the share of R&D firms and average R&D expenditures. This effect shows persistence over time, but totally fades away after seven years as firms are gradually hit by negative R&D profitability shocks.
Original language | English |
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Pages (from-to) | 458-494 |
Number of pages | 37 |
Journal | Journal of Industrial Economics |
Volume | 63 |
Issue number | 3 |
DOIs | |
Publication status | Published - Sept 2015 |
Keywords
- ECONOMETRIC EVIDENCE
- MARKET FAILURES
- INNOVATION
- PERSISTENCE
- COMPLEMENT
- DYNAMICS