Does Funding Source Matter for University R&D? The Effect of Government vs. Industry Grants

SSRN Electronic Journal(2020)

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Universities are an important source of new knowledge. U.S. universities have traditionally relied on federal government funding, but since 2000 the federal share has declined while the private industry share has increased. This paper offers the first causal comparison of federal and private university research funding, focusing on patenting and researcher career outcomes. We begin with unique data on grants from 22 universities, which include individual-level payments for everyone employed on all grants for each university-year. We combine this with patent and Census data, including national IRS W-2 histories. We instrument for an individual’s source of funding with government-wide R&D expenditure shocks within a narrow field of study. These funding supply changes yield a set of compliers who are pushed away from federal funding and into private funding. We find that a higher share of federal funding causes fewer but more general patents, much more high-tech entrepreneurship, a higher likelihood of remaining employed in academia, and a lower likelihood of joining an incumbent firm. Increasing the private share of funding has opposite effects for most outcomes. It appears that private funding leads to greater appropriation of intellectual property by incumbent firms.
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