Money for nothing: How firms have financed R&D-projects since the Industrial Revolution
Research Policy · 2013 · Volume 42 · Issue 10
DOI: 10.1016/j.respol.2013.07.017
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 Chandler (1962), North (1981) and 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, Britain, United States, R&D-financing institutions, Sunk costs, Historical R&D-project cost case studies
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