Working Paper: NBER ID: w1974
Authors: Frank R. Lichtenberg
Abstract: Official government statistics on the "mission-distribution" of \nU.S. R&D investment are based on the assumption that only the government \nsponsors military R&D. In this paper we advance and test the \nalternative hypothesis, that a significant share of privately-financed \nindustrial R&D is military in orientation. We argue that in addition to \n(prior to) contracting with firms to perform military R&D, the \ngovernment deliberately encourages firms to sponsor defense research at \ntheir own expense, to enable the government to identify the firms most \ncapable of performing certain government contracts, particularly those \nfor major weapons systems. To test the hypothesis of, and estimate the \nquantity of, private investment in 'signaling' R&D, we estimate variants \nof a model of company R&D expenditure on longitudinal, firm-level data, \nincluding detailed data on federal contracts. Our estimates imply that \nabout 30 percent of U.S. private industrial R&D expenditure in 1984 was \nprocurement- (largely defense-) related, and that almost half of the \nincrease in private R&D between 1979 and 1984 was stimulated by the \nincrease in Federal demand.
Keywords: R&D; Government Contracts; Private Investment; Defense Research
JEL Codes: O32; H57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal procurement (H57) | Private R&D investment (O32) |
| Federal procurement (H57) | Private R&D investment (military-oriented) (H56) |
| Federal procurement (through design and technical competitions) (H57) | Private R&D investment (O32) |