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Sunk Costs and the Growth and Failure of Small Business

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  • Patrick Paul Walsh

Abstract

We model the growth and failure of small business in Irish Manufacturing during the period 1973-1994. We estimate the effect of start-up size on the employment growth while controlling for the business cycle, the life cycle and the probability of business survival, amongst other factors. Learning models of firm selection and evolution are accepted in Homogenous Goods but rejected in R&D sectors. Due to high (low) entry and failure costs in R&D (Homogenous Goods) sectors, learning is undertaken ex-ante (ex-post), inducing entry with certainty (uncertainty) concerning ex-post performance, causing Gibrat's law to hold (fail).

Suggested Citation

  • Patrick Paul Walsh, 2000. "Sunk Costs and the Growth and Failure of Small Business," Trinity Economics Papers 20002, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:20002
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    File URL: http://www.tcd.ie/Economics/TEP/2000_papers/TEPNo2PW20.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ciara Whelan & Patrick P. Walsh, 2000. "The importance of structural change in industry for growth," Open Access publications 10197/134, School of Economics, University College Dublin.

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    More about this item

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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