Public contracting for private innovation: Government capabilities, decision rights, and performance outcomes

Joshua R. Bruce, John M. de Figueiredo, Brian S. Silverman

Research output: Contribution to journalArticle

Abstract

Research Abstract: We examine how the US Federal Government governs R&D contracts with private-sector firms. The government chooses between two contractual forms: grants and cooperative agreements. The latter provides the government substantially greater discretion over, and monitoring of, project progress. Using novel data on R&D contracts and on the technical expertise available in specific government bureau locations, we test implications from the organizational economics and capabilities literatures. We find that cooperative agreements are more likely to be used for early-stage projects and those for which local government scientific personnel have relevant technical expertise; in turn, cooperative agreements yield greater innovative output as measured by patents, controlling for endogeneity of contract form. The results are consistent with multitask agency and transaction-cost approaches that emphasize decision rights and monitoring. Managerial Abstract: When one private firm outsources an R&D project to another, it can use a range of sophisticated contractual provisions to elicit proper innovative effort. However, government entities are often constrained from employing such provisions due to legal and regulatory restrictions. Policymakers thus face a difficult challenge when contracting with private firms for innovation. We study the US Federal government's R&D contracts, which are restricted to two contractual types: “grants,” which offer little in-process oversight, and “cooperative agreements,” which provide decision rights during the project. We demonstrate that policymakers can enhance outcomes by using cooperative agreements for earlier-stage, higher-uncertainty projects, but only when government scientists with relevant expertise are located near the firm's R&D site.

Original languageEnglish (US)
Pages (from-to)533-555
Number of pages23
JournalStrategic Management Journal
Volume40
Issue number4
DOIs
StatePublished - Apr 2019
Externally publishedYes

Fingerprint

Contracting
Government
Decision rights
Innovation
Expertise
Federal government
Politicians
Private firms
Monitoring
Private sector
Uncertainty
Organizational economics
Patents
Organizational capabilities
Transaction costs
Endogeneity
Personnel
Discretion
Oversight
Agency costs

Keywords

  • capabilities
  • contracts
  • innovation
  • public-private
  • R&D

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

Cite this

Public contracting for private innovation : Government capabilities, decision rights, and performance outcomes. / Bruce, Joshua R.; de Figueiredo, John M.; Silverman, Brian S.

In: Strategic Management Journal, Vol. 40, No. 4, 04.2019, p. 533-555.

Research output: Contribution to journalArticle

@article{15fa7a73d2994fbab6b78dcee80c146e,
title = "Public contracting for private innovation: Government capabilities, decision rights, and performance outcomes",
abstract = "Research Abstract: We examine how the US Federal Government governs R&D contracts with private-sector firms. The government chooses between two contractual forms: grants and cooperative agreements. The latter provides the government substantially greater discretion over, and monitoring of, project progress. Using novel data on R&D contracts and on the technical expertise available in specific government bureau locations, we test implications from the organizational economics and capabilities literatures. We find that cooperative agreements are more likely to be used for early-stage projects and those for which local government scientific personnel have relevant technical expertise; in turn, cooperative agreements yield greater innovative output as measured by patents, controlling for endogeneity of contract form. The results are consistent with multitask agency and transaction-cost approaches that emphasize decision rights and monitoring. Managerial Abstract: When one private firm outsources an R&D project to another, it can use a range of sophisticated contractual provisions to elicit proper innovative effort. However, government entities are often constrained from employing such provisions due to legal and regulatory restrictions. Policymakers thus face a difficult challenge when contracting with private firms for innovation. We study the US Federal government's R&D contracts, which are restricted to two contractual types: “grants,” which offer little in-process oversight, and “cooperative agreements,” which provide decision rights during the project. We demonstrate that policymakers can enhance outcomes by using cooperative agreements for earlier-stage, higher-uncertainty projects, but only when government scientists with relevant expertise are located near the firm's R&D site.",
keywords = "capabilities, contracts, innovation, public-private, R&D",
author = "Bruce, {Joshua R.} and {de Figueiredo}, {John M.} and Silverman, {Brian S.}",
year = "2019",
month = "4",
doi = "10.1002/smj.2973",
language = "English (US)",
volume = "40",
pages = "533--555",
journal = "Strategic Management Journal",
issn = "0143-2095",
publisher = "John Wiley and Sons Ltd",
number = "4",

}

TY - JOUR

T1 - Public contracting for private innovation

T2 - Government capabilities, decision rights, and performance outcomes

AU - Bruce, Joshua R.

AU - de Figueiredo, John M.

AU - Silverman, Brian S.

PY - 2019/4

Y1 - 2019/4

N2 - Research Abstract: We examine how the US Federal Government governs R&D contracts with private-sector firms. The government chooses between two contractual forms: grants and cooperative agreements. The latter provides the government substantially greater discretion over, and monitoring of, project progress. Using novel data on R&D contracts and on the technical expertise available in specific government bureau locations, we test implications from the organizational economics and capabilities literatures. We find that cooperative agreements are more likely to be used for early-stage projects and those for which local government scientific personnel have relevant technical expertise; in turn, cooperative agreements yield greater innovative output as measured by patents, controlling for endogeneity of contract form. The results are consistent with multitask agency and transaction-cost approaches that emphasize decision rights and monitoring. Managerial Abstract: When one private firm outsources an R&D project to another, it can use a range of sophisticated contractual provisions to elicit proper innovative effort. However, government entities are often constrained from employing such provisions due to legal and regulatory restrictions. Policymakers thus face a difficult challenge when contracting with private firms for innovation. We study the US Federal government's R&D contracts, which are restricted to two contractual types: “grants,” which offer little in-process oversight, and “cooperative agreements,” which provide decision rights during the project. We demonstrate that policymakers can enhance outcomes by using cooperative agreements for earlier-stage, higher-uncertainty projects, but only when government scientists with relevant expertise are located near the firm's R&D site.

AB - Research Abstract: We examine how the US Federal Government governs R&D contracts with private-sector firms. The government chooses between two contractual forms: grants and cooperative agreements. The latter provides the government substantially greater discretion over, and monitoring of, project progress. Using novel data on R&D contracts and on the technical expertise available in specific government bureau locations, we test implications from the organizational economics and capabilities literatures. We find that cooperative agreements are more likely to be used for early-stage projects and those for which local government scientific personnel have relevant technical expertise; in turn, cooperative agreements yield greater innovative output as measured by patents, controlling for endogeneity of contract form. The results are consistent with multitask agency and transaction-cost approaches that emphasize decision rights and monitoring. Managerial Abstract: When one private firm outsources an R&D project to another, it can use a range of sophisticated contractual provisions to elicit proper innovative effort. However, government entities are often constrained from employing such provisions due to legal and regulatory restrictions. Policymakers thus face a difficult challenge when contracting with private firms for innovation. We study the US Federal government's R&D contracts, which are restricted to two contractual types: “grants,” which offer little in-process oversight, and “cooperative agreements,” which provide decision rights during the project. We demonstrate that policymakers can enhance outcomes by using cooperative agreements for earlier-stage, higher-uncertainty projects, but only when government scientists with relevant expertise are located near the firm's R&D site.

KW - capabilities

KW - contracts

KW - innovation

KW - public-private

KW - R&D

UR - http://www.scopus.com/inward/record.url?scp=85057487800&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85057487800&partnerID=8YFLogxK

U2 - 10.1002/smj.2973

DO - 10.1002/smj.2973

M3 - Article

AN - SCOPUS:85057487800

VL - 40

SP - 533

EP - 555

JO - Strategic Management Journal

JF - Strategic Management Journal

SN - 0143-2095

IS - 4

ER -