Federal agencies in the U.S. spend billions of taxpayer dollars annually to support academic research. For example, in 2009, total federal obligations for life sciences research and development (R&D) at academic institutions totaled $15.8 billion, of which 90%, or $14.2 billion, was provided by the National Institutes of Health (NIH).  The American Recovery and Reinvestment Act of 2009 provided an additional $8.2 billion to NIH to fund extramural life sciences R&D.  In this era of fiscal constraints, it is more important than ever to understand the returns to public research funding of this nature.

Public expenditures for scientific R&D have long been justified on the grounds of public benefits that result from such funding or for providing an incentive to invest in R&D given that significant gains from the research process accrue to others.  However, a systematic analysis of the quantitative effects of federal funding is needed to gauge its effectiveness, especially at each stage of the R&D process.  This is the gap in understanding that we seek to fill.  Toward this end we:

• Focused on public funding of life sciences research, since as mentioned above, a substantial amount of money is devoted to this.
• Assembled a unique dataset from the National Science Foundation (NSF), NIH, and private sector sources, such as Deloitte’s Recap databases.
• Used economic and statistical analysis to gauge the effectiveness of public funding at different stages of the R&D process.  We focused on the effect of public research funding on its primary recipients, the universities.  In particular, we examined the role of federal funding for life sciences research in:
  • Generating R&D funding from non-federal sources (in other words, does federal research funding have a stimulating effect?)
  • Patenting of drugs and medical inventions
  • Formation of alliances between universities and bio-pharmaceutical firms

Our preliminary results:

• During, 1998—2003, when the NIH budget doubled, each federal dollar U.S. universities received spurred an additional $0.25 in research funding from non-federal sources. However, in the more competitive post-doubling environment (2006 onwards), most research-intensive PhD-granting universities were able to substitute research funding from non-federal sources to compensate for decreased availability of federal funding, and thus held their total R&D expenditures approximately constant. In contrast, at non-PhD-granting and other historically less-research-intensive institutions, total R&D funding and expenditures declined overall in the post-doubling period. Despite these overall declines, the positive effect of successful applications for federal R&D funding on subsequent non-federal research investment at these institutions increased during the post-doubling period, suggesting that receipt of federal R&D funding also provides an informative signal of quality for historically less-research-intensive institutions.
• We find a significant positive correlation between federal R&D funding and patenting activity by universities:  a 10% higher federal R&D funding is associated with 2 to 3% higher successful patent applications for drugs and medical inventions, across universities, with the strongest impact occurring two years after federal funding increases.  However, preliminary results suggest that this apparent increase in patents following increased federal R&D expenditures may come at some cost to quality or usefulness of the patented inventions.
• Over the period between 2000 and 2011, we find a strong positive correlation between the total amount of NIH grant funding received and the number of commercial alliances formed by universities. ...

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