The Color of Money: Federal vs. Industry Funding of University Research

62 Pages Posted: 17 Apr 2020 Last revised: 8 Sep 2020

See all articles by Tania Babina

Tania Babina

Columbia Business School - Finance and Economics

Alex Xi He

University of Maryland - Robert H. Smith School of Business

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Elisabeth Perlman

U.S. Census Bureau

Joseph Staudt

U.S. Census Bureau

Date Written: July 8, 2020

Abstract

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.

Keywords: R&D, Science, Universities, Innovation, Entrepreneurship

JEL Classification: O3, G18, G38, I2

Suggested Citation

Babina, Tania and He, Alex Xi and Howell, Sabrina T and Perlman, Elisabeth and Staudt, Joseph, The Color of Money: Federal vs. Industry Funding of University Research (July 8, 2020). Available at SSRN: https://ssrn.com/abstract=3560195 or http://dx.doi.org/10.2139/ssrn.3560195

Tania Babina

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Alex Xi He (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

MD
United States

HOME PAGE: http://www.alexxihe.com/

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0913 (Phone)

HOME PAGE: http://www.sabrina-howell.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Elisabeth Perlman

U.S. Census Bureau ( email )

4600 Silver Hill Road
D.C., WA 20233
United States

Joseph Staudt

U.S. Census Bureau ( email )

4600 Silver Hill Road
D.C., WA 20233
United States

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