Innovation for Hire: A Descriptive Study of Federal Acquisitions and Contractor R&D
24 Pages Posted: 8 Nov 2019
Date Written: October 29, 2019
In 2016, the U.S. Federal government procured goods and services totaling $460 billion, or over two percent of America’s gross domestic product. Innovation is a key goal of Federal procurements, but the extent to which the acquisition process cultivates private-sector innovation is unclear. We provide evidence on the extent to which the acquisition process is associated with investments in innovation. To shed light on this relationship, we use a hand-collected dataset of individual government contracts awarded between 2011 and 2016 and find that firm-level innovation increases with the extent of government business. Additional analyses show that the government purchases innovation at rates comparable to innovation procured by private-sector customers. Finally, we develop a new measure that allows researchers to rank firms on the intensity of public-sector versus private-sector innovation. Tests deploying this tool show that firms with the most (least) research and development on government (relative to private) contracts produce innovative goods such as missiles (socks). Taken together, our results suggest that Federal acquisitions appear to motivate innovation at levels that are appropriate to the nature of requisitioned goods or services. These results should be of interest to practitioners and acquisition personnel who serve a common goal of efficiently deploying a finite pool of taxpayer-generated revenues to the most productive use.
Keywords: R&D, innovation, research, development, procurement, defense, government contracts, DoD
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