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[The 9th AIEA-NBER Conference] Working Paper - Belenzon Cioaca

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DATE 2021.11.17 15:57

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GUARANTEED MARKETS AND CORPORATE SCIENTIFIC RESEARCH
 
Sharon Belenzon
Larisa C. Cioaca
 
AIEA Working Paper A210802   Issue date August 2021
 
 
Firms invest in scientific research to increase their chances of landing lucrative procurement contracts
with the U.S. government. This is an important but understudied channel through which the
government encourages corporate scientific research, particularly when private market incentives are
insufficient. Using data on $6 trillion in contracts matched to 4,520 publicly traded U.S. firms from
1980 through 2015, we estimate the effect of R&D contracts on upstream and downstream corporate
R&D (measured by scientific publications and patents, respectively). We document a positive effect
of R&D contracts on publications and show that the effect is stronger when private market incentives
are weak. R&D contracts encourage publications that (i) are not used in the firm’s internal inventions,
(ii) spill over to rivals’ inventions, and (iii) are not protected by patents. However, the effect
has weakened over time, because the U.S. government has emphasized reduced cost and increased efficiency
and transparency in contract awards. Following such policy reforms as the Federal Acquisition
Streamlining Act of 1994, the share of R&D contracts in all contracts declined from a high of 24% in
1998 to 10% in 2015, while the share of commercial contracts grew from 6% to 14% over the same period.
As government procurement emphasized technologies with existing private market applications,
the ability of guaranteed public markets to substitute for private markets in encouraging upstream
corporate R&D weakened. The reorientation of government procurement toward commercially proven
technologies has likely contributed to the withdrawal of corporations from participating in scientific
research.
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