title: Money for nothing: How firms have financed R&D-projects since the Industrial Revolution.
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.
authors.affiliation: Department of Economic History, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, United Kingdom ; Department of Accounting, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, United Kingdom.
authors.forename: Gerben
authors.initials: G
authors.lastname: Bakker
keywords: Britain; Historical R&D-project cost case studies; R&D-financing institutions; R&D-project financing-history; Sunk costs; United States