Private Investment in R&D to Signal Ability to Perform Government Contracts

Frank R. Lichtenberg

NBER Working Paper No. 1974 (Also Reprint No. r1116)
Issued in July 1986
NBER Program(s):Productivity, Innovation, and Entrepreneurship

Official government statistics on the "mission-distribution" of

U.S. R&D investment are based on the assumption that only the government

sponsors military R&D. In this paper we advance and test the

alternative hypothesis, that a significant share of privately-financed

industrial R&D is military in orientation. We argue that in addition to

(prior to) contracting with firms to perform military R&D, the

government deliberately encourages firms to sponsor defense research at

their own expense, to enable the government to identify the firms most

capable of performing certain government contracts, particularly those

for major weapons systems. To test the hypothesis of, and estimate the

quantity of, private investment in 'signaling' R&D, we estimate variants

of a model of company R&D expenditure on longitudinal, firm-level data,

including detailed data on federal contracts. Our estimates imply that

about 30 percent of U.S. private industrial R&D expenditure in 1984 was

procurement- (largely defense-) related, and that almost half of the

increase in private R&D between 1979 and 1984 was stimulated by the

increase in Federal demand.

download in pdf format
   (308 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1974

Published: "The Private R&D Investment Response to Federal Design and Technical Competitions". From The American Economic Review, Vol. 78, No. 3, (June 1988).

Users who downloaded this paper also downloaded* these:
Hause Ability and Schooling as Determinants of Lifetime Earnings, or If You're So Smart, Why Aren't You Rich?
Korajczyk, Lucas, and McDonald Understanding Stock Price Behavior around the Time of Equity Issues
Li Higher Education in China: Complement or Competition to US Universities?
Miltersen and Schwartz w10258 R&D Investments with Competitive Interactions
Lichtenberg w2745 Government Subsidies to Private Military R&D Investment: DOD's IR&D Policy
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us