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How to Set Budget Caps for Competitive Grants

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Abstract

We study how funding agencies should set budget caps for competitive grants. We show that budget caps influence the researchers' submission strategy and, in particular, whether they steer their project choice towards the agencies' favorite projects, and the level of funds they request. The welfare impact of alternative approaches depends on the level of competition, the cost of public funds and the social value of project implementation.

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  • Alessandro De Chiara & Elisabetta Iossa, 2019. "How to Set Budget Caps for Competitive Grants," CEIS Research Paper 448, Tor Vergata University, CEIS, revised 24 Jan 2019.
    • Handle: RePEc:rtv:ceisrp:448
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    References listed on IDEAS

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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Elazar Berkovitch, 2004. "Why the NPV Criterion does not Maximize NPV," The Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 239-255.
    3. Maarten Janssen & Eric Rasmusen, 2002. "Bertrand Competition Under Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 11-21, March.
    4. Gianni Fraja, 2016. "Optimal public funding for research: a theoretical analysis," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 498-528, August.
    5. Mark Armstrong & John Vickers, 2010. "A Model of Delegated Project Choice," Econometrica, Econometric Society, vol. 78(1), pages 213-244, January.
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    Cited by:

    1. Iossa, Elisabetta & De Chiara, Alessandro, 2019. "Public Procurement as a Demand-side Policy: Project Competition and Innovation Incentives," CEPR Discussion Papers 13664, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Competitive Grants; Procurement of Innovation; Project Choice; Research Funding; Research Tournament;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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