Opening Up Military Innovation: Causal Effects of Reforms to U.S. Defense Research

Abstract

There is little econometric study of how governments should procure innovation. One choice facing policymakers is whether to tightly specify the innovations they seek (a “Conventional” approach) or to allow firms to suggest ideas (an “Open” approach). We exploit a natural experiment in the widely emulated Small Business Innovation Research (SBIR) program. From 2018, the U.S. Air Force simultaneously held Open and Conventional competitions. We compare them using within-competition regression discontinuity designs on administrative data from 2003 to 2019. Open awards positively affect desired government outcomes: military benefits from the adoption of new technologies measured by (non-SBIR) defense contracts and private commercial innovation measured by VC funding and patenting. By contrast, Conventional awards have no effects on these outcomes, and instead only foster SBIR incumbency. We show that the greater specificity of Conventional topics helps to explain these differences. The results point to benefits from open innovation.