NEW YORK – As government funding for university research declines, private companies are ramping up their investments in academia. But what happens when funding shifts from government to private sources? In a working paper circulated by the National Bureau of Economic Research, Columbia Business School Professor Tania Babina uses a brand new data set comprising grants for university research from 22 universities and wage records for individual researcher to show that privately-funded research more often results in researchers departing for commercial careers, while federally-funded research more likely results in the emergence of high-tech startups.

Professor Babina and her co-authors compared research grants, patent filings, and U.S. Census Bureau data to track three career outcomes: researchers who engage their research in high-tech entrepreneurship, those who go on to work for an incumbent firm, and those who continue in academia. They find that private sector funding leads to more patents and an increased likelihood of leaving academia to join the business funding the research. The authors suggest that private funders may be more motivated to commercialize the research results through patents, as well as the chance to train future employees. In fact, the study shows that 1 in 5 university researchers who go on to work for funder companies end up at the same firm that invested in their research. An analysis of government funded research finds that it leads to a higher likelihood of continuing in academia and an increase in high-tech entrepreneurship.

“Government funding and private funding are not simple substitutes. One dollar is not the same as the next,” says Columbia Business School Professor Tania Babina. “While government funding fosters innovation that is open for all to access and use, data shows that private funding more often supports a corporate goal to maximize profits. Companies want to benefit from the research they fund, and we see that in the highly commercial outcomes of the intellectual property in which they invest.”

Working with New York University Professor Sabrina Howell, University of Maryland Professor Alex Xi He, and economists Elizabeth Ruth Perlman and Joseph Staudt of the U.S. Census Bureau’s Center for Economic Studies, Professor Babina and the research team built a causal model using a novel data set from the University of Michigan’s Institute for Research on Innovation and Science (IRIS) that covers all grants at 22 U.S. research universities, including New York University, Princeton University, and the University of Virginia. The authors calculate the share of federal and private funding used between 2001 and 2016 for each of the 235,000 researchers included in the data set. They use changes to the availability of government funding for a research area of each researcher to predict changes in funding source for each researcher. They then match the distribution of individual researchers’ funding to data from the U.S. Census Bureau, including W-2 records, allowing them to track how each researcher’s job trajectory changes when researchers rely more on federal vs. private sources of funding.

Additional Takeaways:

• MORE GOVERNMENT FUNDING MEANS FEWER PATENTS – A 10 percent increase in the mean share of government funding reduces the chances a university researcher will patent the following year by 56 percent and indicates fewer patents overall. Not only is privately-funded research more likely to result in patents, but 40 percent of the patents with a private sector assignee are awarded to the original private sponsor.
• GOVERNMENT FUNDING LEADS TO HIGH-LEVEL ENTREPRENEURSHIP – A 10 percent increase in the mean share of government funding increases the probability of high-tech entrepreneurship within three years by 46 percent, mainly because the open nature of government-sponsored research allows for researchers to appropriate their findings for the benefit of their own startups.
• GOVERNMENT FUNDING IS NOT MORE BASIC – The research team finds that the number of citations and originality of patents funded by private and government sources are highly similar. This, together with the fact that government funding leads to more high-tech startups, challenges the notion that private funding leads to less basic and more commercially applicable research.

As private funding increasingly compensates for decreases in government-sponsored university research, this study opens some important questions into the tradeoff between economic returns and long-term innovation. While private funding prompts more immediate commercialization and capital returns of research, government funding allows for greater knowledge sharing and prompts long-term, cumulative innovation. This is largely because private companies and universities negotiate ownership of research output, with private companies tending to receive control over any resulting intellectual property, while government funding maintains a standard of open and public research outputs.

“This research reminds us to be intentional about how we fund university research,” said Professor Babina. “We have to find a balance because different funding yields different outcomes. As federal funding becomes more and more scarce, researchers should be cognizant of these outcomes and take care to understand how alternative funding sources can play a role.”

The working paper, distributed by the National Bureau of Economic Research, can be found online: here.

To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.

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