Photo of professor Lanahan meeting with a student while sitting at a round table in the cafe inside the Lillis Business Complex

The Spillover Effect of R&D Funding

A Lundquist College of Business professor and her coauthor are redefining how the impact of publicly funded research is measured.

In “Estimating Spillovers from Publicly Funded R&D: Evidence from the U.S. Department of Energy” associate professor of management and Stewart Distinguished Faculty Lauren Lanahan and her coauthor Kyle R. Myers of Harvard Business School quantify research and development spillovers. Using investments made by the U.S. Small Business Innovation Research (SBIR) program, the authors develop a methodology to trace how technology generated by one firm’s R&D “spills over” and benefits other firms across both geographic and technological space.

“Our estimates suggest that for every patent produced by grant recipients, three more are produced by others who benefit from spillovers,” the authors conclude. Additionally, “60 percent of these spillovers occur within the U.S., and many of them occur in technological areas substantially different from those targeted by the grants.”

This study is important because SBIR contracts and grants are tied to funding directives, and in this way, the federal government functions as the visible hand in the market saying, “we want you to invest at this point on the innovative frontier,” Lanahan said. This study documents the size of spillovers and to whom they accrue.

The work was computationally intensive. Drawing upon SBIR investments made through the U.S. Department of Energy and complimentary state government programs, the authors traced innovative spillovers across the entire U.S. Patent and Trademark Office database. To receive SBIR funding, firms were required to be based in the United States and have fewer than 500 employees.

“Most studies only look at the direct recipients,” Lanahan said. “What we show is that the return is greater—it catalyzes three more patents. Tracing spillovers is challenging (empirically speaking), but policymakers should be aware of these returns. Sometimes policymakers are asking the wrong questions or limiting their assessment when they focus on jobs or direct returns. In this work, we are refining methods of measurement and offering a more complete assessment.”

The paper is published in the July edition of the top journal, American Economic Review.

Lanahan and her coauthor both served on the congressionally mandated review of the U.S. federal SBIR program. The researchers were tasked with examining the innovative returns of the federal program, which awards $2-3 billion annually. The congressional review work began in 2018 and examines one agency at a time, starting with the Department of Energy. This service work led to the academic paper estimating the scale and scope of spillover activity within the energy sector. Up next for Lanahan is a similar review at the National Science Foundation.

—AnneMarie Knepper-Sjoblom ’05, Lundquist College Communications