Selecting Innovation Funding Mechanisms: A Framework for Policymakers

Matthew S. Clancy, Matthew Esche, Siddhartha Haria, Claire T. McMahon, Christopher Snyder and Caleb Watney

No 35549, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The U.S. federal government spends roughly $150 billion a year on research and development through mechanisms ranging from grants and contracts to prizes, advance market commitments, and tax credits. These funding mechanisms differ markedly in risk allocation, decision authority, and incentive power, yet policymakers have little systematic guidance for choosing among them. We develop a framework that asks the policymaker three initial questions about the contracting environment: Can they articulate the work to be done? Can they specify what would constitute a successful solution? Can they identify the most capable performers to contract with? The answers considerably narrow the set of viable mechanisms, enabling a more tractable choice of the efficient mechanism based on further considerations from the innovation-economics literature.

JEL-codes: L52 O32 O38 (search for similar items in EconPapers)
Date: 2026-07
Note: IO LE POL PR
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Forthcoming: Selecting Innovation Funding Mechanisms: A Framework for Policymakers , Matthew S. Clancy, Matthew Esche, Siddhartha Haria, Claire McMahon, Christopher M. Snyder, Caleb Watney. in Entrepreneurship and Innovation Policy and the Economy, volume 6 , Jones and Lerner. 2026

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