Public Contracting for Private Innovation: Government Expertise, Decision Rights, and Performance Outcomes

NBER Working Paper No. 24724

Issued in June 2018

NBER Program(s):Industrial Organization, Law and Economics, Public Economics, Productivity, Innovation, and Entrepreneurship



We examine how the U.S. Federal Government governs R&D contracts with private-sector firms. The government chooses between two contractual forms: grants and cooperative agreements. The latter provides the government substantially greater discretion over, and monitoring of, project progress. Using novel data on R&D contracts and on the geo-location and technical expertise of each government scientist over a 12-year period, we test implications from the organizational economics and contracting literatures. We find that cooperative agreements are more likely to be used for early-stage projects and those for which local government scientific personnel have relevant technical expertise; in turn, cooperative agreements yield greater innovative output as measured by patents, controlling for endogeneity of contract form. The results are consistent with multi-task agency and transaction-cost approaches that emphasize decision rights and monitoring.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w24724

Published: Bruce, Joshua R., John M. de Figueiredo, and Brian S. Silverman (2019). “Public Contracting for Private Innovation: Government Capabilities, Decision Rights, and Performance Outcomes,” Strategic Management Journal 40(4): 533-555.