Being right or fair: A portfolio approach to research funding

Research is essential to provide solutions for current and future societal challenges, justifying an active role by the government for example through funding of research proposals. This paper argues that portfolio theory provides a powerful tool to make research funding decisions. It allows for an informed management decision process, also in the presence of project interdependencies and multiple policy objectives. Yet it is not applied in practice, and the most common approach is merit-based funding. As decisions are generally delegated to specialised public organisations, this is possibly explained by the existence of a principal-agent relationship, where a utilitarian principal follows a portfolio approach and makes choices for the greater good, while the agent uses, by convention, a merit-based approach to research funding. Survey data show that policy practitioners working in the field of research and innovation policy have a relatively strong preference for the merit-based funding model, suggesting the presence of a “club-effect” in line with the alleged agency relationship.