Management
A Key To More Innovation
Maryland Smith’s Brent Goldfarb shows that federal funding affects both the rate and direction of inventive activity, partly by investing in areas that private corporations eschew.
Feb 11, 2019

A Key To More Innovation

Exploring the link between U.S.-funded research and innovation

Feb 11, 2019
Management
As Featured In 
Research Policy

If you want to ignite fresh innovation in technology, there are worse places to start than Washington, D.C.

That’s because research funded by the federal government has a tendency to spark breakthrough inventions. In recent research, Maryland Smith’s Brent Goldfarb and two co-authors show that the federal funding affects both the rate and direction of inventive activity, in part by investing in technological areas that private corporations eschew. Goldfarb is an associate professor of management and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He conducted the research along with Maryland Smith Ph.D. candidate Yuan Shi and Ohio State University professor Rafael A Corredoira.

The federal government funds about 30 percent of U.S. research and development. But there are concerns about federal funding levels. Since 2010, U.S. government spending on R&D has remained flat, meaning that funding in real terms has actually declined.

In their research, the authors explore a range of questions concerning the contingencies of the federal funding of innovation. They explore whether funding mechanisms matter and whether different funding agencies perform the same way.

The authors analyzed 4,311 federally funded patents from 2001 to 2004 across multiple agencies, relying on a flexible and precise matching scheme. As compared to corporate funded patents, the most seminal federally funded patents spur approximately 51 percent more influence.

The higher impact and influence of government sponsored patents, they write, is largely driven by a subset of government agencies that fund research conducted externally at universities and other nonprofit entities. The research revealed that federal funding affects the direction of technological change, with federal dollars more likely to support R&D in less commercially active and vibrant areas.

On the one hand, the researchers write, the National Science Foundation is the only agency whose mission is to support basic research. The agency does sponsor patents of greater impact than the private sector, but findings of longer term influence are less conclusive, the researchers say, though they are “suggestive of potentially very large effects.”

The Department of Energy and the National Aeronautics and Space Administration, meanwhile, whose emphases are more applied, “are neither more nor less likely to produce path-breaking technologies than the private sector,” according to the research. Nonetheless, the agencies might be fulfilling their missions quite well. “One of NASA’s primary objectives is facilitating space flight -- which until quite recently was of limited commercial interest,” the study notes.

The bulk of the influential patents stemming from government-funded R&D come from the National Institutes of Health and the Defense Department, particularly its Defense Advanced Research Projects Agency. “It is these agencies that drive our main results,” the study says.

“Research results are hard to predict, and the long-term implications of results or even entire fields of research are exceptionally difficult to foresee,” the study says. “If science policy is fulfilling its role, we should expect to see this particularly in the long term. Our results suggest that for all its imperfections, U.S. science policy remains successful in supporting the long-term productivity of inventive activity.”

The research also adds to a body of evidence demonstrating that government funding nurses particular areas, “sometimes over long periods of time,” leading to an increased rate of inventive activity and supporting areas of research that “would otherwise be orphaned or neglected by the private sector.”

“In this sense, federally funded research affects both the rate and direction of inventive activity.”

Read more: Federal Funding and the Rate and Direction of Inventive Activity is published in Research Policy.

About the Author(s)

GoldfarbBrent

Dr. Brent Goldfarb is Associate Professor of Management and Entrepreneurship in the M&O Department at the University of Maryland's Robert H. Smith School of Business. Goldfarb's research focuses on how the production and exchange of technology differs from more traditional economic goods, with a focus on the implications on the role of startups in the economy. He focuses on such questions as how do markets and employer policies affect incentives to discover new commercially valuable technologies and when is it best to commercialize them through new technology-based firms? Why do radical technologies appear to be the domain of startups? And how big was the dot.com boom? Copies of Dr. Goldfarb's publications and working papers have been downloaded over 1200 times.

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