Cutting the Innovation Engine : How Federal Funding Shocks Affect University Patenting, Entrepreneurship, and Publications

This paper studies how federal funding affects the innovation outputs of university researchers. We link person-level research grants from 22 universities to patent, publication, and career outcomes from the U.S. Census Bureau. We focus on the effects of large, idiosyncratic, and temporary cuts to federal funding in a researcher’s pre-existing narrow field of study. Using an event-study design that controls for principal investigator fixed effects, we document that these negative federal funding shocks reduce high-tech entrepreneurship and publications but increase patenting. The lost publications tend to be higher quality and more basic, while the additional patents tend to be lower quality, less general, and more often privately assigned. Overall, the federal funding cuts push researchers away from more open research with greater impact on future knowledge, and towards more subsequently appropriated research. The level of funding explains the effects on publications, while the source of funding—federal vs. private—appears to play an important role in the effects on high-tech entrepreneurship and patents. Together with evidence from industry contracts, the results suggest that shifting university research funding from federal to private sources leads to more appropriation of intellectual property by corporate sponsors