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When Does Funding Research by Smaller Firms Bear Fruit?: Evidence from the SBIR Program

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  • Joshua S. Gans
  • Scott Stern

Abstract

This paper evaluates whether the relative concentration of funding for small, research-oriented firms in a small number of high-tech industries is related to the differences across industries in the level of appropriability or capital constraints facing small firms. To do so, we exploit a novel test based on the relationship between industry-level private venture financing and the performance of government-subsidized R&D projects in those sectors. If the government funds projects on the margin (as it should under an optimal subsidy regime) and industries only differ in terms of the level of appropriability, then private funding and subsidized project performance are positively correlated. Conversely, if industries only differ in terms of the level of capital constraints, this correlation is negative. Our principal empirical result is that project-level performance is highest for those technologies that are in industrial segments that attract high rates of venture capital investment. This result suggests that industrial sectors differ in the degree of appropriability for research-oriented small businesses and that variation in the appropriability regime helps explain the concentrated nature of venture capital activity in the economy.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7877.

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Date of creation: Sep 2000
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Publication status: published as Joshua Gans & Scott Stern, 2003. "When Does Funding Research By Smaller Firms Bear Fruit?: Evidence From The Sbir Program," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 12(4), pages 361-384, August.
Handle: RePEc:nbr:nberwo:7877

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Cited by:
  1. Müller, Elisabeth & MacGarvie, Megan J. & Cockburn, Iain M., 2008. "Patent Thickets, Licensing and Innovative Performance," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 08-101, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Andrew A. Toole & Dirk Czarnitzki, 2005. "Biomedical Academic Entrepreneurship Through the SBIR Program," NBER Working Papers 11450, National Bureau of Economic Research, Inc.
  3. Rodriguez-Palenzuela, Diego, 2001. "Sources of economic renewal: from the traditional firm to the knowledge firm," Working Paper Series, European Central Bank 0043, European Central Bank.
  4. Astebro, Thomas B. & Dahlin, Kristina B., 2005. "Opportunity knocks," Research Policy, Elsevier, Elsevier, vol. 34(9), pages 1404-1418, November.
  5. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
  6. Da Rin, Marco & Nicodano, Giovanna & Sembenelli, Alessandro, 2005. "Public policy and the creation of active venture capital markets," Working Paper Series, European Central Bank 0430, European Central Bank.
  7. Audretsch, David B. & Link, Albert N. & Scott, John T., 2002. "Public/private technology partnerships: evaluating SBIR-supported research," Research Policy, Elsevier, Elsevier, vol. 31(1), pages 145-158, January.
  8. Hyytinen, Ari & Pajarinen, Mika, 2002. "Small Business Finance in Finland. A Descriptive Study," Discussion Papers, The Research Institute of the Finnish Economy 812, The Research Institute of the Finnish Economy.
  9. Hyytinen, Ari & Pajarinen, Mika, 2001. "Financial Systems and Venture Capital in Nordic Countries: A comparative Study," Discussion Papers, The Research Institute of the Finnish Economy 774, The Research Institute of the Finnish Economy.
  10. Ali-Yrkkö, Jyrki & Hyytinen, Ari & Liukkonen, Johanna, 2001. "Exiting Venture Capital Investments: Lessons from Finland," Discussion Papers, The Research Institute of the Finnish Economy 781, The Research Institute of the Finnish Economy.
  11. Marco Da Rin & Thomas F. Hellmann & Manju Puri, 2011. "A survey of venture capital research," NBER Working Papers 17523, National Bureau of Economic Research, Inc.
  12. Hyytinen, Ari & Pajarinen, Mika, 2002. "Financing of Technology-Intensive Small Business: Some Evidence on the Uniqueness of the ICT Industry," Discussion Papers, The Research Institute of the Finnish Economy 813, The Research Institute of the Finnish Economy.
  13. Antonelli Cristiano & Teubal Morris, 2011. "From the corporation to venture capitalism: new surrogate markets for knowledge and innovation-led economic growth"," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201106, University of Turin.
  14. Haifeng Qian & Kingsley Haynes, 2014. "Beyond innovation: the Small Business Innovation Research program as entrepreneurship policy," The Journal of Technology Transfer, Springer, Springer, vol. 39(4), pages 524-543, August.

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