European public goods: The US ARPA system as a role model for promoting disruptive innovation in Europe?

Research and innovation are central determinants of the competitiveness of nations. Research and innovation are also of great importance for the European Union and its member states to secure their prosperity and economic sovereignty in the future. In view of major European challenges such as the goal of a climate-neutral economy or the current corona pandemic, groundbreaking innovations have a special role to play. They have the potential to produce new, undreamt-of solutions whose welfare-enhancing effects can be felt across national borders. This impact can particularly justify European public funding of groundbreaking innovations. The present study looks at the European funding of breakthrough innovations and the question of a sensible design of the allocation of funding. In this context, the question is repeatedly raised to what extent the EU needs a European version of the American Defense Advanced Research Projects Agency (DARPA). With DARPA, the United States has long had a state organization that - according to the narrative - has already been able to initiate disruptive innovations very successfully. To be able to compare innovation funding in the European Union and the United States, an understanding of both funding structures is necessary. Therefore, the present study first outlines the basic features of research funding in both systems. Subsequently, the central findings are bundled and recommendations ("lessons learned") for the design of European innovation funding are derived.