When investing in research and development (R&D), institutions must decide whether to take a top-down approach — soliciting a particular technology — or a bottom-up approach in which innovators suggest ideas. This paper examines a reform to the U.S. Air Force Small Business Innovation Research (SBIR) program that transitioned from “Conventional topics,” which solicit specific technologies, to “Open topics,” which invite firms to suggest any new technology that may be useful to the Air Force. The reform seeks to address challenges facing military R&D, in particular a less innovative defense industrial base. We show that the Open program attracts new entrants, defined as younger firms and those without previous defense SBIR awards. In a regression discontinuity design that offers the first causal evaluation of a defense R&D program, we show that winning an Open award increases future venture capital investment, non-SBIR defense contracting, and patenting. Conventional awards have no effect on these outcomes but do increase the chances of future defense SBIR contracts, fostering incumbency. The bottom-up approach appears to be a mechanism behind Open's success. For example, winning has a positive effect on innovation even in less specific Conventional topics. The results suggest that government (and perhaps private sector) innovation could benefit from more bottom-up, decentralized approaches that reduce barriers to entry, minimize lock-in advantages for incumbents, and attract a wider range of new entrants.
Authors
- Acknowledgements & Disclosure
- We thank Chris Benson, David O'Brien, Susan Celis, Charles Chimento, Gregory Coleman, Allen Franke, Steve Lauver, Charles Perla, David Shahady, Molly Walsh, Will Roper and many others at the U.S. Air Force who have helped make this research possible. We also thank Pierre Azoulay, Liat Belinson, Adam Jaffe, Saul Lach, Josh Lerner, Danielle Li, Ramana Nanda, Trang Nguyen, Jacquelyn Pless, Claudia Steinwender, Noam Yuchtman, Tom Wollman and seminar participants at the AEA, LSE, MIT, Rotterdam, NYU and Utah for comments. Howell served as an unpaid Special Government Employee of the U.S. Department of Defense to perform this research, and would like to thank the Kauffman Foundation for financial support. Van Reenen would like to thank the ESRC for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research or the United States Air Force.
- DOI
- https://doi.org/10.3386/w28700
- Published in
- United States of America
