When Does Funding Research by Smaller Firms Bear Fruit?: Evidence from the SBIR Program

Joshua S. Gans, Scott Stern

NBER Working Paper No. 7877
Issued in September 2000
NBER Program(s):Industrial Organization Program, Productivity, Innovation, and Entrepreneurship Program

This paper evaluates whether the relative concentration of funding for small, research-oriented firms in a small number of high-tech industries is related to the differences across industries in the level of appropriability or capital constraints facing small firms. To do so, we exploit a novel test based on the relationship between industry-level private venture financing and the performance of government-subsidized R&D projects in those sectors. If the government funds projects on the margin (as it should under an optimal subsidy regime) and industries only differ in terms of the level of appropriability, then private funding and subsidized project performance are positively correlated. Conversely, if industries only differ in terms of the level of capital constraints, this correlation is negative. Our principal empirical result is that project-level performance is highest for those technologies that are in industrial segments that attract high rates of venture capital investment. This result suggests that industrial sectors differ in the degree of appropriability for research-oriented small businesses and that variation in the appropriability regime helps explain the concentrated nature of venture capital activity in the economy.

download in pdf format
   (438 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7877

Published: Joshua Gans & Scott Stern, 2003. "When Does Funding Research By Smaller Firms Bear Fruit?: Evidence From The Sbir Program," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 12(4), pages 361-384, August. citation courtesy of

Users who downloaded this paper also downloaded* these:
Lerner w5753 The Government as Venture Capitalist: The Long-Run Effects of the SBIR Program
Gans, Hsu, and Stern w7851 When Does Start-Up Innovation Spur the Gale of Creative Destruction?
Link and Ruhm w14057 Bringing Science to Market: Commercializing from NIH SBIR Awards
Brander, Egan, and Hellmann w14029 Government Sponsored versus Private Venture Capital: Canadian Evidence
Razin and Sadka w21606 Migration State and Welfare State: Competition vs. Coordination in an Economic Union
NBER Videos

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

Contact Us