Skip to main content
Create account Takes you to the ID+ sign in page Sign in
Journal of Industrial EconomicsVolume 63, Issue 3, 1 September 2015, Pages 458-494

Sunk Costs, Extensive R&D Subsidies and Permanent Inducement Effects(Article)(Open Access)

  • Arqué-Castells, P.,
  • Mohnen, P.
  Save all to author list
  • aNorthwestern University, Searle Center for Law, Regulation and Economic Growth, Chicago, IL 60611, United States
  • bInstitut d'Economia de Barcelona, Facultat d'Economia i Empresa, UB c/Tinent Coronel Valenzuela, 1-11, Bellaterra, Barcelona, 08304, Spain
  • cMaastricht University, UNU-MERIT, Maastricht, Netherlands

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. © 2015 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd.

  • ISSN: 00221821
  • Source Type: Journal
  • Original language: English
  • DOI: 10.1111/joie.12078
  • Document Type: Article
  • Publisher: Blackwell Publishing Ltd


© Copyright 2015 Elsevier B.V., All rights reserved.

Cited by 21 documents

Zhao, Y. , Peng, B. , Elahi, E.
Does the extended producer responsibility system promote the green technological innovation of enterprises? An empirical study based on the difference-in-differences model
(2021) Journal of Cleaner Production
Ziesemer, T.H.W.
The Effects of R&D Subsidies and Publicly Performed R&D on Business R&D: A Survey*
(2021) Hacienda Publica Espanola
Busom, I. , Vélez-Ospina, J.-A.
Subsidising innovation over the business cycle
(2021) Industry and Innovation
View details of all 21 citations
Inform me when this document is cited in Scopus:
Set citation alert Set citation feed
{"topic":{"name":"Additionality; Subsidies; Tax Incentives","id":16812,"uri":"Topic/16812","prominencePercentile":96.3251,"prominencePercentileString":"96.325","overallScholarlyOutput":0},"dig":"baa88ed34ad91e00fc1494daf5e7c4abbf639f89a4972ff1dcd6c4601597fe8a"}

SciVal Topic Prominence

Topic:
Prominence percentile: