OPENing up Military Innovation: Causal Effects of ‘Bottom-up Reforms’ to U.S. Defense Research
Sabrina T. Howell, Jason Rathje, John Van Reenen and Jun Wong
The U.S. military has historically been an important investor in transformational technologies, but this model faces challenges from a consolidated and less innovative defense industrial base. This paper examines reforms to the Air Force Small Business Innovation Research (SBIR) program, which are part of an effort to address these challenges by bringing new firms with frontier technologies into the defense market. The “Open topic” reform takes a bottom-up approach to innovation, encouraging a broad set of ideas. This contrasts with Conventional topics, which solicit highly specific technologies in a top-down approach. We show that the Open program attracts younger and smaller firms. 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 venture capital investment, patenting, and non-SBIR defense contracting, all effects that are driven by younger firms and those without previous defense SBIR awards. Conventional awards have no effects on these outcomes, but increase the chances of future DoD SBIR contracts. 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.
Stunted Growth: How Stabilizing Relationships with Public-Consumers Influence Start-up Performance
Rathje, J.M.
ABSTRACT: To acquire resources, resource-constrained technology start-ups often from R&D relationships with public (i.e., government) funding agencies. However, empirical research is uncertain as to whether such public-private R&D relationships are associated with stronger start-up performance. I propose that this uncertainty is due to the unexplored heterogeneity in public funding agencies, i.e., differences in relationships formed with public-consumer funding agencies, who fund R&D to buy future products or services, and public-researcher funding agencies, who simply fund R&D. Drawing on resource dependence theory, I argue and show that R&D relationships with public-consumers uniquely generate stabilizing dependencies. Stabilizing dependencies resolve technical and market uncertainty, leading to more rapid technical innovation and greater likelihood of survival, while mitigating the desire to seek alternative resource-exchange relationships, slowing growth. I test these theories with 1,437 R&D relationships between technology-startups and the U.S. Department of Defense, finding general support for my claims. My primary contribution is at the intersection of policy, resource dependence, and growth, relating how stabilizing dependencies may simultaneously result in complementary resource-exchanges which boost innovation and survival while slowing growth.