Research Subsidy Spillovers, Two Ways

Abstract

We study how the outputs of research spill over technological and geographic space in the context of the U.S. Small Business Innovation Research program. We infer input-output links using text analyses and identify the marginal costs of producing patents using noncompetitive grant matching policies. Due to technological spillovers, the cost of spurring patents related to specific technologies are much larger than the costs of spurring any kind of patent. Due to geographic spillovers, roughly 80% of the net patents produced by the program are from inventors that do not directly receive grants; the domestic/foreign split of output is about 75/25. The large spillovers across these two dimensions imply that the cost effectiveness of research subsidies can vary widely depending on which outputs count. Within the U.S., we identify regions likely responsible for these spillovers, which reveals a pattern that suggests the government must trade off its ability to influence either the rate or direction of invention.