Opening Up Military Innovation: Causal Effects of ‘Bottom-Up’ Reforms to U.S. Defense Research

92 Pages Posted: 26 Apr 2021 Last revised: 20 Jul 2021

See all articles by Sabrina T. Howell

Sabrina T. Howell

New York University (NYU) - New York University

Jason Rathje

Government of the United States of America - U.S. Air Force Academy

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Jun Wong

New York University (NYU)

Date Written: April 2021

Abstract

When investing in research and development (R&D), institutions must decide whether to take a top-down approach — soliciting a particular technology — or a bottom-up approach in which innovators suggest ideas. This paper examines a reform to the U.S. Air Force Small Business Innovation Research (SBIR) program that transitioned from “Conventional topics,” which solicit specific technologies, to “Open topics,” which invite firms to suggest any new technology that may be useful to the Air Force. The reform seeks to address challenges facing military R&D, in particular a less innovative defense industrial base. We show that the Open program attracts new entrants, defined as younger firms and those without previous defense SBIR awards. In a regression discontinuity design that offers the first causal evaluation of a defense R&D program, we show that winning an Open award increases future venture capital investment, non-SBIR defense contracting, and patenting. Conventional awards have no effect on these outcomes but do increase the chances of future defense SBIR contracts, fostering incumbency. The bottom-up approach appears to be a mechanism behind Open's success. For example, winning has a positive effect on innovation even in less specific Conventional topics. The results suggest that government (and perhaps private sector) innovation could benefit from more bottom-up, decentralized approaches that reduce barriers to entry, minimize lock-in advantages for incumbents, and attract a wider range of new entrants.

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Suggested Citation

T. Howell, Sabrina and Rathje, Jason and Van Reenen, John Michael and Wong, Jun, Opening Up Military Innovation: Causal Effects of ‘Bottom-Up’ Reforms to U.S. Defense Research (April 2021). NBER Working Paper No. w28700, Available at SSRN: https://ssrn.com/abstract=3834140

Sabrina T. Howell (Contact Author)

New York University (NYU) - New York University

Jason Rathje

Government of the United States of America - U.S. Air Force Academy

John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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Centre for Economic Policy Research (CEPR)

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Jun Wong

New York University (NYU) ( email )

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