You Work For Us Now: Concentration in University-performed Defense R&D

Chandler S. Reilly (2025). Defence and Peace Economics 36(5): 761–788

Journal (DOI) · Markdown

Abstract

Concentration in university research funded by the Department of Defense (DOD) has been rising in recent years, deviating from the steady levels of concentration in other federally-funded university research. The purpose of this paper is to explain that rise in concentration. When the DOD funds defense-specific R&D projects, there are two priorities affecting bureaucratic incentives: 1) Coordination incentivizes steering research concentration toward specific technological ends, and 2) Security incentivizes actively limiting risks of information leakage. Sole source research center contracts make the necessary coordination and monitoring easier to achieve. As demand for projects that require more coordination and security increases, spending is allocated to sole source research centers leading to increasing concentration. Spending on military research projects awarded to universities such as aircrafts rapidly increased from 2008 to 2020 with much of that spending accruing to DOD-sponsored university research centers. Over that period, the share of obligations awarded to the 16 universities that manage DOD research centers rose from 37 percent in 2008 to 59 percent in 2020. This paper contributes to our understanding of the conditions under which policy makers choose to deviate from using grants to fund early-stage research and concentrate funding in a select group of performers.

Introduction

Few issues in science policy receive more scholarly attention than inequality in the distribution of research funding (Aagaard, Kladakis, and Nielsen 2020; Howard and Laird 2013; Katz and Matter 2020; Mongeon et al. 2016; Noble et al. 2020; Xie 2014). Some researchers view inequality in this area as the result of elite universities capturing more of the funding opportunities. Using measures of inequality, such as Gini coefficients or the share of funding going to the top N university recipients, researchers have found government research funding to be concentrated in a small group of prestigious universities (Katz and Matter 2020; Xie 2014). However, there has been little effort to understand the demand-side decisions that may lead to such outcomes and how those decisions vary across awarding agencies. Bureaucrats tasked with allocating R&D funding have discretion over many aspects of funding decisions and will organize transactions to best suit their interests (e.g. increasing budgets). Those choices affect the concentration of research funding. For example, as this paper will show, concentration in R&D expenditures reported by universities is higher for Department of Defense (DOD) funded research than research funded by other federal agencies.

This paper uses the economics of bureaucracy to explain why DOD bureaucrats organize university research using contractual mechanisms that result in much higher levels of concentration than that for other federal agencies. The DOD spends some of its R&D budget on university research that looks much like what other federal agencies fund (e.g. early-stage research). But one of the goals of defense R&D is to produce usable military technology. For R&D projects aimed at military technology specifically (what I will refer to as ‘defense-specific’), high levels of coordination and security are needed to reach the agency’s goals. In these situations, bureaucrats are incentivized to show progress toward the end-goal using outcomes such as transitioning research to later stages in the R&D process. Additionally, when security is a priority, many research projects face restrictions on disclosure. These priorities make it in the interest of bureaucrats to limit the number of performers in university research. Funding R&D through sole source research center contracts allow the DOD to limit the number of performers while maintaining control over security and the direction of research. The sixteen universities that administer these research centers are responsible for nearly 60 percent of all defense R&D obligations awarded to universities in recent years. Similar levels of concentration have been found in defense procurement more generally. Carril and Duggan (2020) find that concentration and limited competition among for-profit defense contractors is the result of mergers in the defense industry during the 1990s and changes in procurement practices in response by the DOD.

For defense R&D in universities, rising concentration has not been in response to a changing composition of suppliers. DOD bureaucrats have chosen to establish long term research centers called Federally Funded Research and Development Centers (FFRDC) and University Affiliated Research Centers (UARC) in part because the contracts allow for sole source funding. Many of these research centers have been around for decades, including those which existed under similar contracts just after World War II. Their use has increased in recent years as demand for early-stage, defense-specific R&D has risen due to a shift in defense priorities. Starting in 2008, there has been an emphasis in the National Defense Strategies published by the DOD in investing in long-term technological advancement, a task taken on, in part, by university research centers. While not all DOD-funded university research is performed under these contracts, using sole source research centers has led to high and rising concentration as the DOD has committed more spending toward defense-specific projects.

Like other federal agencies, the DOD funds university research at the earliest stages in the R&D process. But research center contracts awarded by the DOD contrast with how other federal agencies typically fund university research. Grants for research are a more common mechanism used by agencies such as the National Institutes of Health (Myers 2020). The use of grants to fund university research is often viewed as a powerful policy tool to promote innovation. For instance, Azoulay and Li (2020) compare and contrast various contractual mechanisms in innovation policy and conclude that grants are the most effective for early-stage research under two conditions: 1) The social value of research is high, and 2) Specifying research demands is impossible. Some researchers have shown that military-related research leads to spillover innovations such that many projects that universities work on for the DOD have the potential for high social value (Moretti, Steinwender, and Van Reenen 2021; Ruttan 2006). However, faced with the need to demonstrate success in the short-term, bureaucrats will define desired outcomes in early-stage research changing the incentives for how research is to be organized. Additionally, faced with the need to place limits on the disclosure of research outcomes, DOD bureaucrats choose to rely on research contracts. Specifically, contracts that allow the DOD to have greater discretion over the direction of research and performers. Importantly, these contracts are also long-term such that the DOD can choose to fund the research centers when priorities change. This is exactly what can be observed starting in 2008.

A shift in defense policy increased demand for advancements in military technology such that much more DOD funded R&D became aimed at this goal. Because these projects require higher levels of coordination and security than other areas of R&D, the DOD began to rely on its pre-existing sole source research centers as well as establishing new ones. As a result, the concentration of DOD funded university research rose. Most of the increase in defense R&D spending awarded to universities was allocated directly to the sole source research centers.

This paper contributes to three literatures. First, the analysis of university R&D expenditures from federal sources shows the DOD exhibits a substantial and growing difference in concentration compared to overall federal concentration, contributing to the literature on the distribution of government science funding. Researchers have documented the concentration in the biomedical and other sciences but have yet to give attention to a similar phenomenon in defense R&D and lack a theory explaining variation in concentration (Aagaard, Kladakis, and Nielsen 2020; Howard and Laird 2013; Katz and Matter 2020; Mongeon et al. 2016; Noble et al. 2020; Xie 2014).

Second, drawing from and contributing to the public choice literature (Butos and McQuade 2006; Coyne 2008, 2015; Hall 2020; Hazlett and Reilly 2022; Niskanen 1968; Reilly 2022), I apply a theory of the economics of bureaucracy explaining why the incentives bureaucrats face lead to policy choices resulting in high concentration under certain conditions. Hall (2020) studies a related phenomenon with an analysis of the perverse incentives within defense R&D policy leading to issues such as mission creep. My contribution focuses on explaining how the problem the DOD faces in working with universities to perform military research is approached through specific contractual arrangements in response to incentives generated by the institutional features of defense R&D policy. This explanation contrasts with an alternative hypothesis of comparative advantage. Some may argue that the universities which receive the bulk of defense R&D funding are simply better at performing research. I provide and argument and evidence against this hypothesis.

Lastly, the paper contributes to the literature studying the economics of innovation policy (Azoulay and Li 2020; Gross and Sampat 2021, 2022a, 2022b; Mowery 2012; Sampat 2012). This literature analyzes the incentives that funding mechanisms such as grants create for researchers and their effects on research outcomes (Azoulay and Li 2020); models of targeted innovation policy such as ARPA (Azoulay et al. 2019); and how crises shape innovation policy (Gross and Sampat 2021, 2022a, 2022b). I contribute to this literature by providing an explanation for why an agency such as the DOD chooses to rely on contracts over grants for early-stage research performed by universities. The features of research center contracts are tailored to defense-oriented innovation policy and maintain the discretion over research the DOD desires. The research centers are not unique to the DOD as many other federal agencies have also established some form of university-administered research center, but the DOD is among the few federal agencies that heavily rely on such arrangements.¹ Furthermore, DOD-created UARCs fall outside federal regulations that govern FFRDCs, providing more discretion for the DOD to tailor new research centers to its needs (Reilly 2022).

The rest of the paper proceeds as follows. ‘Concentration in DOD R&D at the University Level’ first gives a brief background on defense R&D funding in universities. Then, ‘Concentration in DOD R&D at the University Level’ presents evidence of the higher level and upward trend in the concentration of DOD-funded university research from 2003 to 2020. ‘The Problem of Funding Defense R&D in Universities’ explains how the coordination and security priorities in defense R&D incentivize DOD bureaucrats to limit competition and maintain discretion over performers. ‘The Research Center Contract Solution’ shows how the research center contracts used by the DOD address the coordination and security concerns in allocating R&D funding to universities. ‘Funding University Research Centers Drives Concentration’ uses data on DOD R&D contract and grant obligations to show the extent to which funding is awarded to sponsored research centers as priorities shifted to defense-specific projects, leading to rising concentration. Additionally, ‘Funding University Research Centers Drives Concentration’ presents evidence against the comparative advantage hypothesis. ‘Conclusion‘ concludes.

Concentration in DOD R&D at the University Level

Brief Background on University Involvement in Defense R&D

The United States federal government began funding university research for defense as early as World War I. However, it was not until World War II that the government tasked universities with large-scale research projects to aid the war effort (Geiger 1993, 3-29).² The Manhattan Project is among the most famous of these projects, along with other efforts, including work on radar technology in the Radiation Laboratory housed at the Massachusetts Institute of Technology (Gross and Sampat 2022b; Kealey 1996; Leslie 1993). The Office of Scientific Research and Development (OSRD), a civilian agency serving military goals throughout the war, was responsible for awarding and managing military-related research contracts. During the tenure of OSRD, research obligations to universities were highly concentrated, with just 10 universities receiving over 60 per cent of the total (Gross and Sampat 2022b, 36). Research obligations were concentrated in a small group of universities in part because the most talented researchers were concentrated in those universities at the time. Concentration was also a policy choice made in response to the coordination necessary to facilitate technology development at the scale needed in response to the urgency of war (Gross and Sampat 2022a).

After the war, the government established the Department of Defense (DOD) in 1947 and there continued to be an interest in utilizing the nation’s scientists for war preparedness (Leslie 1993). DOD components such as the Office of Naval Research maintained many of the wartime relationships with universities through new contracts that continued defense projects (Geiger 1992, 28-31). Funding military-related research in universities faced two new obstacles after World War II. First was the competition from other federal sources for science funding. Politicians had the opportunity to increase public science funding for more basic research efforts in health and technologies with the potential for broad social benefits absent the urgency of war (Geiger 1993, 30–61; Gross and Sampat 2022a). By 1960, the DOD’s share of federal funding for basic research in universities was only 25 percent compared to over 90 percent 10 years prior (Abrams 1989, 24). Second, several prominent universities during this time implemented bans on university faculty participating in classified research, limiting the pool of potential universities that could be a source of R&D services for many military projects (Dickson 1988). Federal agencies such as the Department of Health and Human Services (particularly the NIH), the National Science Foundation (NSF), and the Department of Energy became the top federal sources of funding for university research throughout the second half of the twentieth century. By 1971, most federal R&D funding allocated to universities came from those three agencies (NCSES 2021b). The portion of total federal R&D spending allocated to university research by the DOD has been relatively stable since its decline in the postwar years. Increases in DOD R&D funding in universities are variable and related to funding from other agencies. During the late 1970s and into the 1980s, for example, universities lobbied for more defense R&D funding as other sources faced tighter budgets and the Strategic Defense Initiative increased funding for defense research (Kistiakowsky 1989). More recently, from 2003 to 2020, university R&D expenditures funded by the DOD average $4.3 billion (in constant 2012 dollars) which is just below the NSF average of $4.5 billion (NCSES 2021a).

Now far removed from World War II, the threat of the Cold War, and with the rise of more research universities it would seem that the DOD would have little reason to concentrate research funding in select universities. This has not been the case. As will be described in more detail in the sections that follow, the coordination needs as discussed by Gross and Sampat (2022a) as well as security concerns continue to apply for the DOD especially when funding R&D projects for defense-specific technologies.

Concentration of Defense R&D in Universities, 2003–2020

Researchers studying the concentration of government-funded university research have documented high levels of concentration across multiple countries (Aagaard, Kladakis, and Nielsen 2020; Katz and Matter 2020; Mills 2021; Noble et al. 2020; Xie 2014). Some researchers argue that undue concentration is simply an intrinsic feature in federal science policy or a supply-side matter of funding accruing to elite universities (Mills 2021; Xie 2014). It is unclear, however, whether concentration differs depending on the source of funding as measures are commonly given for all federal research funding. The ‘intrinsic feature’ or supply-side arguments also fail to provide a satisfying explanation for the underlying causes of concentration. Measuring concentration at the university level for DOD-funded research and all other federally-funded research can shed light on the former issue. Section 3 will deal with the latter issue. The measure of concentration I use is the share of total expenditures of the top 20 university recipients using data from the Higher Education Research and Development Survey (HERD) survey from 2003 to 2020 (NCSES 2022a).³ Other potential measures such as top 5, top 10, top 50, a Gini coefficient, or a Herfindahl-Hirschman Index could also be used. Each of these other measures produce similar patterns of concentration and are omitted. The top 20 measure captures the universities making up the largest recipients of federal R&D funding and has an intuitive interpretation but is ultimately an arbitrary choice.

Figure 1 shows the percentage of total expenditures for the top 20 university recipients at the federal level (exclusive of the DOD) and the DOD alone. The focus of this paper is on the concentration figure for the DOD, however, the federal level is also presented to highlight that the upward trend found for the DOD is not common across other federal agencies. From 2003 to 2010, there is a downward trend in concentration for federal agencies except the DOD, decreasing from 46 percent in 2003 to 33 percent in 2010 shown by the dashed line. In the latter half of this period, concentration remains relatively constant with slight variation around 33 percent. Concentration for DOD funded R&D expenditures shown by the solid line decreases slightly from 49 percent in 2003 to under 48 percent in 2010. After 2010 DOD concentration begins rising quickly, increasing from under 48 percent in 2010 to over 57 percent in 2020. The average percentage point difference between DOD concentration and other federal agency concentration is 13.5 over the entire period. Not only does the DOD exhibit higher levels of concentration than federal funding every year over this period, but there has also been a sizeable relative increase over the last 10 years.

Figure 1: Share of R&D expenditures as reported by universities funded by the department of defense and all other federal agencies among top 20 university recipients, 2003-2020. Figure available in the published version. Source: NCSES (2021a).

In general, the DOD and other federal agencies fund university research in the early-stages of the R&D process (basic and applied research). The difference in concentration across federal agencies raises the question of whether the way the DOD structures transactions with universities is driving higher levels of concentration. The levels of concentration over the last 20 years are similar to those during World War II as discussed above. Furthermore, concentration of research funding has been found to lead to diminishing returns resulting in detrimental effects for innovation and other measures of research performance (Aagaard, Kladakis, and Nielsen 2020; Mongeon et al. 2016). If there is potential for such effects and decision makers choose a set of policies leading to higher levels of concentration, then there is a need to explain those choices.

As would be the case in analyzing market concentration, one must be cautious in making inferences based on a rise in concentration in R&D expenditures. Increases in concentration can be mistakenly taken as direct evidence of limitations on competition in a market setting. The industrial organization literature has long rejected this hypothesis, arguing that concentration may be indicative of more efficient firms capturing more of a market and those firms still face the possibility of new entry, forcing them to keep prices low (Demsetz 1973). A similar logic applies to this context. What is showing up as an increase in concentration could very well be due to universities with a comparative advantage in defense research competing for and capturing a larger share of DOD R&D funding. Concentration alone does not imply barriers to entry for universities performing defense research. It should be further noted, if there is evidence of barriers to entry in defense research, this does not in itself imply a mistake in policy that can be remedied. As will be discussed in the next section, the decision-making of bureaucrats who fund R&D is driven by the constraints and incentives they face, which must be considered in explaining policy choices.

The Problem of Funding Defense R&D in Universities

The agencies in charge of allocating R&D funding to universities do so through various mechanisms such as different forms of contracts and grants. Facing specific constraints in their respective agencies, bureaucrats will differ in the choices over which mechanisms to use and the details of those transactions can affect the concentration of funding. These choices can be understood using the economics of bureaucracy as developed in the public choice literature. These models posit that bureaucrats are self-interested actors maximizing their budgets subject to political constraints (Butos and McQuade 2006; Coyne 2008; Niskanen 1968). For this paper, the politician’s role in setting R&D policy is assumed as limited to determining an agency’s mission and appropriating agency budgets. Politicians reward successful bureaucracies with larger budgets and staff, creating the incentive for bureaucrats to demonstrate success through measurable outputs (Coyne 2015; Hall 2020). Bureaucrats must define success using proxy measures of output absent market mechanisms such as profit and loss (Coyne 2015). However, what counts as a successful outcome varies across agencies and the purpose of R&D funding.

Coordinating R&D for the Benefit of the Agency

The purpose of government-funded R&D is either to stimulate innovation for the benefit of society or the benefit of the funding agency (Edquist and Zabala-Iturriagagoitia 2012). The DOD funds R&D in many areas, including those for which the outcomes do not have direct military relevance. However, much of the DOD’s R&D spending aims to benefit the agency by enhancing or creating military technology such as weapons, aircraft, or electronics used by soldiers. The justification for this approach is to build up capabilities in preparation for potential conflicts and to maintain a technological edge on foreign adversaries as suggested by the stated goals of the DOD and scholars studying the U.S. military (Department of Defense 2020b; Hall 2020). The DOD has a clear interest in maintaining discretion over the direction of research it funds in these areas. This includes which topics are researched and for what purpose with success dependent on the technological goals determined by the agency. For instance, suppose the DOD wants to develop a hypersonic weapon. Once the desired features of this weapon are determined, the process will take years from the early stages of research to having a production ready design. This lengthy timeline requires coordination across stages and methods to gauge progress along technological goals to demonstrate success in the short term as politicians will be more likely to continue funding such a project when there is clear progress. Bureaucrats use the movement of research outcomes to later stages, or transitioning knowledge, as a proxy measure for agency-specific innovation (Peña et al. 2017). Using this measure of output incentivizes bureaucrats to organize research in a way that makes the production of research outcomes that can be transitioned easier.

In contrast, an agency such as the NIH primarily funds university research to stimulate innovation for the benefit of society. The NIH does not have the same interest in directing innovation from the earliest stages to new technologies and faces the difficulty of measuring its contributions to innovation. Other parties such as universities, research hospitals, and industry use NIH-funded research as an input into their own research that ultimately results in innovation. The NIH relies more on measures of research performance such as publications and citations to demonstrate success to politicians (National Institutes of Health 2014, 2021).⁴ When agencies fund research for the benefit of the government, federal regulations constrain them to organizing that research using procurement contracts rather than other funding vehicles such as grants (see, FAR 35.003(a)). These regulations do not determine the structure of the contract entirely. Bureaucrats will have some discretion over the details of each transaction. The constraint does tell us, however, that research contracts are used for agency-specific innovation.

The mix of spending between research contracts and research grants can then be used to as a measure of the extent to which DOD-funded university research is oriented toward innovation for the agency’s benefit. Higher spending on contracts would suggest that more funding is oriented toward R&D with specific DOD goals. The use of contracts relative to grants to fund research is shown for the DOD and all other federal agencies in Figure 2.⁵ Obligations for university-performed research funded by the DOD from fiscal years 2001 to 2020 are shown in the top left panel and the ratio of contract obligations to grant obligations in the bottom left panel. While there is considerable variation in the mix between contracts and grants, contract obligations consistently make up a large proportion of obligations made to universities for research. After a steep decline in the ratio of contract to grant obligations below 1 between 2002 and 2007, there was an increase in contract use. For the last several years, contract obligations have made up most of the DOD’s obligations awarded to universities to perform research. The mix between contract and grant obligations for other federal agencies is weighted substantially more toward grants as shown in the right panels of Figure 2. The bottom right panel shows that the contract to grant ratio is consistently below 1, grant obligations tend to be much higher than contract obligations. The mix for the DOD, as contrasted with that of other federal agencies, suggests that the DOD focuses more on funding university research in line with its research priorities that benefit the agency. These differences do not necessarily reflect worse use of government funds by the DOD when contrasted with other federal agencies. Rather, there are differences in priorities among federal agencies. The DOD, in particular, tends to focus on the development of military technologies (i.e. research priorities that benefit the agency), and so allocates funds accordingly as seen in Figure 2. As defined by the Director of Defense Research and Engineering for Modernization, research priorities include but are not limited to areas of technology such as: ‘Artificial intelligence and machine learning; Autonomy; Biotechnology; Cyber; Directed Energy; Fully networked command, control and communications; Hypersonics; Microelectronics; Quantum Science; Space; and 5G’ (Department of Defense 2020b, 90). Each of these priorities is defined to meet the strategic objective to ‘ensure the technological advantage of the US’ (11). Bureaucrats carrying out the funding decisions are evaluated based on meeting goals related to those priorities.

Figure 2: DOD R&D obligations to university performers by funding mechanism in millions of constant 2012 dollars, 2001-2020 (top left panel). Ratio of contract obligations to grant obligations for the DOD, 2001-2020 (bottom left panel). Federal (excluding DOD) R&D obligations to university performers by funding mechanism in millions of constant 2012 dollars, 2001-2020 (top right panel). Ratio of contract obligations to grants obligations for other federal agencies, 2001-2020 (bottom right panel). The horizontal dashed line in the bottom panels represents equality between contract and grant obligations. Figure available in the published version. Source: U.S. Government Contracts and Grants (usaspending.gov).

For instance, at the Air Force Office of Scientific Research, ‘program officers are encouraged to manage their projects actively; they follow grantee progress, forcing collaborations (e.g. matching grantees with experimentation facilities) when needed’ (Peña et al. 2017, 20). Active management such as this is factored into evaluations of bureaucratic performance. Program managers are rewarded for transitioning knowledge upstream to applied projects where early-stage research is used to advance military technology (27). Gauging success over the short and long term includes using measures of research output such as productivity within DOD laboratories and evidence of ‘transformational impact’ (20-21). These evaluation features incentivize bureaucratic decision-making toward specific outcomes rather than broader notions of promoting innovation that could be captured by measures of research performance such as publications or citations. We can also expect that the incentives in this area will be most prevalent for defense-specific projects where there are concrete technological demands. University researchers that work on defense-specific projects are typically tasked by the DOD to work on R&D at the earlier stages of innovation such that the potential endpoint of innovation tends to be far into the future. The DOD procures research services from universities in these early stages, intending to transition research outcomes to later stages in the R&D process and ultimately to tangible improvements in defense-specific technologies. These goals are at odds with university researchers’ incentives to contribute to the scientific enterprise through publications in scientific journals and other outlets (Dasgupta and David 1994; Dnes and Garoupa 2005; Kistiakowsky 1989; Stern 1999).

If faced with a funding opportunity from the DOD, there is a some chance that the research will also be restricted ex ante from publication or other disclosure (Gupta et al. 2014). Furthermore, personnel requirements such as eligibility for security clearances place an additional fixed cost on university researchers. As a result, the DOD faces the problem of aligning researchers’ goals with those of the agency to maintain control over the direction of research, transition outcomes to later stages in the R&D process, and maintain security over research outcomes. Researchers themselves face a trade-off in choosing DOD-funded research over other opportunities as well. Given the chance of having research outputs restricted in some way, a researcher faces some risk of losing out on publications related to funding. Therefore, it is not that we should expect researchers who take on DOD-funded work are completely closed off from traditional scientific enterprise, but time and effort are scarce. Any time spent on research that is ultimately restricted cannot also be spent on alternative research that may lead to publication.⁶

Security Issues in Defense R&D

DOD bureaucrats must also consider the protection of national security in research performance. Protecting classified and sensitive information is a priority for the DOD. In a 2020 memorandum to all DOD personnel, Secretary of Defense Mark Esper wrote, ‘[p]roper Operations Security (OPSEC) is critical to protecting our forces, ensuring our mission success, and implementing the National Defense Strategy… and it can mean the difference between our winning and losing as we face great power competitors’ (Department of Defense 2020c, 1). Determinations for the classifying information, including research, are governed by executive order and agency-specific Security Classification Guides (Coyne and Hall 2021; Department of Defense 2020a; Department of the Army 2006). Bureaucrats do not necessarily choose to create policies restricting the diffusion of research outcomes but, once in place, will be responsible for their implementation. What kind of incentives does this create for the bureaucrat? If bureaucrats face a cost for information leakages, there will be an incentive to monitor research performance to ensure compliance with security protocols. As the number of performers increases, the costs of monitoring will increase. Monitoring costs and the risk of leakages can be reduced by limiting the number of performers in cases where secrecy needs to be protected. Bureaucrats will organize research to lower monitoring costs as the value of protecting secrecy rises by limiting the number of performers. It need not be the case that all research projects are kept secret. Projects with clear relevance to national security, such as the development of new weapons or other defense-specific R&D, are more likely to be a security concern making the monitoring incentives stronger in these cases. Enforcement mechanisms for bureaucratic responsibilities over information security include the revocation of security clearances, employment termination, and criminal investigations (Department of Defense 2020a, 11-12, 2020c). Information protection also factors into personnel evaluation. As recently as 2016, 82 percent of derivative classifiers surveyed by the Inspector General had security as part of their performance evaluation (Department of Defense 2016).⁷ Efforts to protect information and research programs are not limited to formal classification thresholds either (e.g. Secret, Top Secret). For instance, Controlled Unclassified Information (CUI) refers to information that does not reach the threshold for classification but is considered sensitive and subject to similar protections as classified information. Research designated as CUI must be reviewed and approved before publication or presentation (Department of Defense 2020c). As is the case for classified information, unauthorized disclosure of CUI can result in sanctions for responsible individuals (Department of Defense 2014). Managers’ responsibilities include layers of review to assess the risk of performers and projects to determine the appropriate level of protection needed (Department of Defense 2020a, 14–15).

The Defense Federal Acquisition Regulations Supplement (DFARS) also includes language that allows for the restriction of information produced under contract with the DOD (Norris 2004). This clause does not define information as classified nor CUI but requires information such as research outcomes that are produced under contract to be reviewed for approval before publication. These additional avenues for information restriction broaden the scope of responsibility for bureaucrats in monitoring R&D. As more projects fall under potential restriction – whether classified, CUI, or restricted under DFARS – there are stronger incentives to limit the number of performers and reduce monitoring costs. However, bureaucrats do not have complete discretion over choosing research performers. Full and open competition requirements restrict this discretion in many cases such that only specific contract mechanisms can be used if they are to be avoided, as will be discussed in more detail below.

The Research Center Contract Solution

The DOD solves its coordination and security problems using long-term contracts establishing research centers administered by universities. The sponsored research centers at the center of the relationships between the DOD and universities include Federally Funded Research and Development Centers (FFRDC) and University Affiliated Research Centers (UARC). FFRDCs are governed by federal regulations that define what a FFRDC is, how one can be established, and any restrictions on the level and type of funding. The Federal Acquisition Regulations note that FFRDCs are established to meet ‘some special long-term research or development need which cannot be met as effectively by existing in-house or contractor resources’ (FAR 35.017 (a)(2)). These research centers are not limited to being administered by universities and have been used in some form since the 1950s. UARCs, as defined by the DOD, are ‘research organizations within a university or college that are established to provide or maintain essential engineering research, and/or development capabilities through a long-term strategic relationship with the DOD’ (Department of Defense 2013, 3). UARCs are not subject to federal regulations specific to the UARC. Instead, the DOD has developed a UARC management plan detailing the policies governing the establishment and use of UARCs. The first UARCs were established in 1996. As of 2022, there are two university-administered FFRDCs and fourteen UARCs sponsored by the DOD.⁸ Over the last 20 years, UARCs have outpaced FFRDCs in number and funding after Congress placed strict limitations on the DOD’s creation of new FFRDCs (Dale and Moy 2000; Reilly 2022). The justification for establishing a UARC is not subject to Congressional approval, making them much easier to establish and fund relative to FFRDCs.

While there are differences across FFRDCs and UARCs, the research centers share the following characteristics: long-term relationships, the DOD sponsor defines research areas, eligibility for sole source funding, and there are provisions for the sponsor to determine personnel policies for security. These features solve the coordination problem for the DOD and reduce monitoring costs for security purposes by providing a mechanism to limit the number of performers that would not be possible through standard procurement contracts alone. The long-term nature of research center contracts has some variance, ranging between 5 and 15-year terms with the expectation of renewal (Gupta et al. 2014). Many existing research centers have long histories of working with the DOD under other arrangements. For example, the Johns Hopkins University Applied Physics Laboratory (JHU-APL) was initially established in 1942 for defense research. At one point, the research center operated under a FFRDC contract but was eventually decertified in 1978. By 1996, JHU-APL received one of the first six UARC contracts and has been operating under this arrangement since then. Similarly, the Georgia Tech Research Institute was established in the 1930s as the State Engineering Experiment Station and participated in defense research going back to World War II. It was one of the first six UARCs to be established and has had the contract renewed since. Even the most recent UARC, operated by the University of Alaska established in 2018, had a series of contracts for research on nuclear issues prior to receiving the UARC contract (Reilly 2022). Locking in performers such as this allows the DOD to steer research toward its longer-term goals captured by the research center’s core competencies, which facilitates demonstrating progress in transitioning knowledge. Furthermore, the long-term investment creates a monetary incentive for the university to incur the fixed costs associated with obtaining security clearances for researchers and investing in defense-specific assets such as facilities, equipment, and human capital relevant to defense R&D. This also means that the DOD has access to a stable supply of university researchers with the necessary skills and security clearances to work on defense-specific R&D as those priorities arise.

A research center’s core competencies are those areas of research the DOD sponsor defines in the process of awarding the contract. These competencies vary across research centers and are aligned with the sponsoring component’s technological goals. Most UARCs’ core competencies are related to engineering relevant to military applications with the exception being the University of Maryland (UM) UARC established in 2003 under the sponsorship of the National Security Agency. The UM UARC, the Applied Research Laboratory for Intelligence and Security, is the only UARC focused on social scientific R&D. Specific projects are then assigned to a research center in line with those core competencies. The notion that the university research center is the only possible source for research in some areas is justified on the basis of the core competencies. However, examining the core competencies across UARCs would suggest that individual UARCs are unlikely to be the only potential source for specific R&D projects. As shown in Table 1, research areas are broadly defined, and there is qualitative overlap in their descriptions. This suggests that the purpose of defining core competencies is to allow for ease of contracting via sole source status rather than a performance constraint faced by the DOD. For example, multiple research centers have core competencies that include research on ocean warfare, artificial intelligence, and cybersecurity.⁹ While it is plausible that each research center specializes in subtopics within those three broad areas (and other areas of overlap), it is unlikely that the research center is the only potential source for those research projects. Overlap in terms of the skills and facilities necessary to perform research in subtopics of the same field would suggest that multiple research centers could work on the needed projects. Evidence of this issue of overlap goes back to FFRDCs prior to the establishment of most UARCs as well. The Defense Science Board was tasked with recommending policies to improve DOD R&D programs. The report notes that FFRDCs, which similarly have research areas unique to the center were performing functions that other contractors, including other universities, could have performed instead (Defense Science Board 1997).

Sole source funding means that the DOD sponsor can allocate funding directly to a research center without soliciting the contract for full and open competition. A DOD sponsor then has more discretion over where R&D funding is allocated to and in the process can limit the number of performers. Contracts with this feature also decrease the ongoing administrative costs associated with university research as new projects can be started within a research center without going through the layers of review, waiting periods, and review of bids associated with a competitive procurement contract. Those costs will only be incurred at the initial stage of establishing a research center which may be subject to competition. However, in the case of UARCs, there are exceptions to competitive solicitation at the initial stage. Suppose a university already has a UARC contract. In that case, another UARC contract may be awarded to it absent competitive requirements, or if a university has a long history of working with the DOD, a sponsor may use that relationship to justify a UARC contract awarded non-competitively (Department of Defense 2010). Because the DOD is the agency defining these rules, there are weak external incentives to promote competition if a sponsor desires to work with a specific university. Once the UARC is established, funding for projects that fall within its defined core competencies may be awarded on a sole source basis. As spending priorities change, the flexibility of the sole source arrangement allows sponsors to quickly assign R&D work to one of the existing research centers. The process works as follows.

Table 1. Department of defense sponsored research centers administered by universities and core competencies. See footnotes attached to research center names for sources of core competencies.

In many cases, the establishing contract is an Indefinite Delivery Vehicle (IDV) awarded to the university and then used to allocate funding for specific projects through delivery orders without creating a new contract (Department of Defense 2013). This contracting vehicle defines expectations for funding and a time frame for the contract but work to be performed is left open-ended. A suboffice of the UARC sponsor will determine projects for the UARC to perform based on their needs and in line with the center’s core competencies (Department of Defense 2013). This means that the UARC contract also provides flexibility to change the direction of research in the event goals change. In the process, that suboffice can avoid the administrative hurdles typically associated with soliciting a new project, receiving bids, and managing a new contract.

To give an example of how this works, consider the Applied Research Laboratory (ARL), a UARC administered by the University of Texas at Austin and sponsored by the Navy. The Navy awards the IDV contract establishing a UARC and its core competencies. From Table 1, those core competencies include research areas such as unmanned underwater vehicles, undersea warfare, and geospatial sensing. Given the research areas, offices such as the Naval Sea Systems Command or the Naval Research Laboratory task the UARC to execute projects related to the core competencies and aligned with their technological goals. Funding is awarded through those projects typically on a cost-reimbursement basis. UARCs are also used to perform a mix of classified and unclassified research (Department of Defense 2013). Classified research at this scale requires investments in secure facilities and security clearances among personnel to ensure compliance with the expectations of DOD sponsors for protecting information. For example, most job openings at the Johns Hopkins Applied Physics Laboratory typically require a currently held or interim Secret or Top-Secret security clearance as a condition of employment.²⁶ The structure of UARC contracts and the close monitoring of performance that it allows makes it less costly for DOD bureaucrats to limit unauthorized disclosure of classified or sensitive information, reducing their risk of sanction in the event of a disclosure. Funding early-stage research on a pre-existing classified project or for a new project likely to be classified can be more easily allocated to a UARC. The UARC is already staffed with researchers who have the appropriate security clearances, work in secure facilities, and are closely monitored in their performance by the DOD sponsor. We should expect that if incentives within the DOD to coordinate research outcomes and maintain security become stronger, these research center contracts will be relied on more leading to higher levels of concentration.

Funding University Research Centers Drives Concentration

The advantages the research centers provide for the DOD bureaucrats allocating R&D funding to universities have led to high concentration. One of the implications of the above analysis is that as coordination and security needs increase for the DOD, the incentives to limit the number of performers become stronger. Under these conditions, more funding will be allocated to DOD research centers and result in higher levels of concentration.²⁷ Increases in coordination and security are likely when R&D is defense-specific. Defense-specific meaning projects aimed at particular military technologies (e.g. weapons). More coordination is necessary because defense-specific projects will tend to be those for which the DOD has some end in mind where research is being funded to ultimately result in a prototype. More security is needed because military technologies will be more likely to be the sort of projects that are perceived to be sensitive to national security in the event adversaries obtained information to copy the technology. This suggests that as demand increases for defense-specific R&D, concentration will increase.

In recent years, there has been an increased emphasis within the DOD on long term technological goals in response to what the agency views as the growing threat of China, Russia, and non-state adversaries (e.g. terrorists) as described in the 2008 National Defense Strategy (Department of Defense 2008). For instance, the 2008 National Defense Strategy (NDS) states, with respect to technological goals, ‘[f]irst-class technology means investing in the right kinds of technology at the right time… One area of particular focus is developing the means to locate, tag and track WMD components’ (Department of Defense 2008, 19). The focus on WMD tracking likely served as the impetus for creating one of the more recent UARCs, the Geophysical Detection of Nuclear Proliferation at the University of Alaska. One of the primary goals of that UARC is to develop new strategies of technology to detect nuclear proliferation and verify nuclear treaties (see, Table 1). Similar themes can be found in the subsequent National Defense Strategies of 2012, 2018, and 2022. The 2012 NDS emphasizes the need to invest and develop technologies to counter the threats posed by adversaries such as China, Iran, and terrorists by including goals of ‘sustaining our undersea capabilities, developing a new stealth bomber, improving missile defense, and continuing efforts to enhance the resiliency and effectiveness of critical space-based capabilities’ (Department of Defense 2012, 5), many of which overlap with the core competencies of the research centers the DOD funds. Similarly, the 2018 NDS notes that a major challenge of US defense involves ‘the reemergence of long-term, strategic competition by what the National Security Strategy classifies as revisionist powers. It is increasingly clear that China and Russia want to shape a world consistent with their authoritarian model’ (Department of Defense 2018, 2). According to the 2018 NDS, meeting this challenge requires a long-term innovation strategy to ‘modernize key capabilities’ (5-6). The most recent NDS from 2022 also stresses technology investment to ensure long-term advantages (Department of Defense 2022, 19). Taken together, these themes in defense strategy since 2008 suggest an increase in demand for early-stage R&D for defense-specific projects to meet the military’s technological goals.

Research Center Share of DOD Obligations and Sole Source Comparison

The shift in spending priorities is clear in the mix of R&D contract obligations awarded to universities broken down by their Product and Service Codes (PSC) that describe the general purpose of funding. To keep this division simple, I have categorized obligations as defense-specific and other R&D. Tables 2 and 3 show the full list of PSC and descriptions for defense-specific R&D and other R&D. Defense-specific obligations include funding for R&D on defense systems and specific categories such as tanks. Other R&D obligations include medical R&D, environmental R&D, agricultural R&D, and any other category that is not directly related to defense although still funded by the DOD.

Table 2. 3-digit product or service codes (PSC) associated with defense R&D contract obligations awarded to universities by the DOD.

PSCs and descriptions are found on contract transactions and incomplete descriptions were fixed using the PSC manual (see, https://www.acquisition.gov/psc-manual).

Table 3. 3-digit product or service codes (PSC) associated with other R&D contract obligations awarded to universities by the DOD.

PSCs and descriptions are found on contract transactions and incomplete descriptions were fixed using the PSC manual (see, https://www.acquisition.gov/psc-manual).

Figure 3 shows these obligations from fiscal years 2001 to 2020. From 2008 on there is an upward trend in defense-specific obligations that continues through 2020. Obligations for other sorts of R&D remain roughly constant over the period from 2008 to 2020. The DOD relies on its research centers as spending shifts toward defense-specific priorities.

Figure 3: DOD R&D obligations to university performers by type of R&D in millions of constant 2012 dollars, 2001-2020. Defense-specific R&D includes obligations on transactions where the product or service code description contains ‘defense’ (e.g. defense system, defense other) or other defense category (e.g. missile, ammunition, tank). Other R&D includes obligations on transactions for all other product or service codes (e.g. medical, agriculture, education, economic growth). Tables 2 and 3 contain full list of PSC and descriptions for each category. Figure available in the published version. Source: U.S. Government Contracts and Grants (usaspending.gov).

Figure 4 shows the share of obligations awarded to university-administered FFRDCs and UARCs from fiscal years 2001 to 2020. There is a substantial rise in the share of obligations to these research centers over this period. From 2008 to 2020 this share increases from 37 percent to 59 percent, coinciding with the shift toward defense-specific R&D. The ease of contracting made possible by the sole source status avoids the long and costly process of awarding traditional procurement contracts that would need to be used without the research centers. In the process, the DOD can limit the number of performers and focus on funding UARCs and FFRDCs oriented toward agency goals. The result is rising concentration over time. Many other federal agencies have established FFRDCs, and NASA is the only other federal agency to sponsor a UARC. However, the research centers are less relevant for R&D policy among other federal agencies. Agencies such as the NIH primarily fund R&D to stimulate innovation to benefit society and face a completely different set of incentives compared to the DOD. FFRDCs administered by universities have received an average share of only 16 percent of R&D obligations awarded to universities by federal agencies other than the DOD from 1999 to 2019 (NCSES 2021b). The DOD has stronger incentives to use research centers which better serve R&D aimed at producing military-relevant technologies.

Figure 4: Share of DOD R&D contract and grant obligations awarded to universities with sponsored research centers, 2001-2020. 16 universities are included in the calculation: Carnegie Mellon University, Georgia Institute of Technology, Johns Hopkins University, Massachusetts Institute of Technology, Pennsylvania State University, Stevens Institute of Technology, University of Alaska, University of California Santa Barbara, University of California Santa Cruz, University of Hawaii, University of Maryland College Park, University of Nebraska, University of Southern California, University of Texas at Austin, University of Washington, and Utah State University. Figure available in the published version. Source: U.S. Government Contracts and Grants (usaspending.gov). Note: University of California Santa Cruz administers the UARC sponsored by NASA. It is included in the calculation for this figure only for the transactions funded by the DOD.

Research centers such as FFRDCs, however, are not the only way in which federal agencies can award sole-source funding. R&D contracts may be solicited on a sole source basis if the awarding agency can make a case that the intended recipient is a unique supplier of the needed research services. This raises the question of how much the security concerns for the DOD matter in explaining high levels of concentration. Recall that contracts are used to fund research intended to benefit the agency. Most other federal agencies do not prioritize security to the extent the DOD does, but do fund some university research using contracts. If it were the case that agencies funding research for their benefit find it in their interest to have discretion over performers, regardless of security considerations, then sole source solicitation of research contracts should be common across agencies.

Figure 5 shows this comparison. In the left panel, DOD R&D contract obligations solicited on a sole source basis are represented by the dashed line while obligations awarded using other competitive procedures are represented by the solid line. Sole source obligations make up the majority for the DOD and coincide with the rise in the share of obligations awarded to university research centers. In the right panel, R&D contract obligations solicited on a sole source basis by all other federal agencies are represented by the dashed line and other competitive obligations by the solid line. The opposite mix of obligations across solicitation type is observed for all other federal agencies. Even when obligations for research intended to benefit the funding agency are considered for agencies other than the DOD, sole source solicitation is only a minor proportion of all obligations. It is unlikely this pattern would be observed if security considerations had nothing to do with the choice to rely on sole source arrangements.

Figure 5: Obligations in millions of constant 2012 dollars for DOD R&D contracts awarded to university recipients by the solicitation procedure (left panel) and all other federal agency R&D contracts awarded to university recipients by solicitation procedure (right panel). Max value on left panel is equivalent to $3 billion. Max value on right panel is equivalent to $25 billion. The solid line in both panels representing ‘other’ solicitation procedures includes obligations for any transaction related to a contract using any one of the following solicitation procedures: alternative sources, basic research, negotiated proposal/quote, sealed bid, simplified acquisition, two step, and subject to multiple award fair opportunities. The dashed line in both panels representing sole-source solicitation procedures includes obligations for any transaction related to a contract using sole-source solicitation procedures only. Figure available in the published version. Source: U.S. Government Contracts and Grants (usaspending.gov).

The Comparative Advantage Hypothesis

An alternative hypothesis to the argument presented in this paper is that concentration in university-performed defense R&D is high because there are only a few universities that have a comparative advantage in the kind of research the DOD demands. Those universities will then capture a large share of total funding as observed in Figure 4. To be clear, the comparative advantage hypothesis is not mutually exclusive of the argument advanced in this paper. It is likely true that universities specializing in defense R&D are selected to receive research center contracts. However, if this hypothesis explained most of the variation in concentration, then defense R&D funding would be concentrated in universities with a comparative advantage regardless of funding mechanism. The choice of contracts or grants to fund R&D in universities would be immaterial to the ultimate recipient as only those universities best able to perform would be awarded the funding.

Figure 6 presents evidence against the comparative advantage hypothesis using defense R&D obligations across funding mechanisms.²⁸ The solid line represents DOD R&D contract obligations awarded to universities that administer sponsored research centers as a percentage of total R&D contract obligations awarded to universities from 2001 to 2020. The dashed line represents the same measure but for grant obligations. The share of contract obligations is substantially higher than the share of grant obligations in every year. On average, universities that administer DOD research centers receive 76 percent of all contract obligations while only receiving an average of 16 percent of all grant obligations. Furthermore, there is no increase in the share of grant obligations awarded to the specialized universities from 2008 through 2020 when the demand for defense-specific projects is increasing. If the explanation for concentration was merely a story of comparative advantage, the difference in shares across funding mechanism would be minimal. A piece of the puzzle left unexplained by the comparative advantage hypothesis is the variation in contract arrangements which is explained by the argument in this paper. Limiting the number of performers is in the interest of the DOD and the agency achieves this using sole source research center contracts.

Figure 6: DOD R&D contract obligations awarded to universities that administer sponsored research centers as a percentage of total obligations (solid line). DOD R&D grant obligations awarded to universities that administer sponsored research centers as a percentage of total grant obligations (dashed line). Figure available in the published version. Source: U.S. Government Contracts and Grants (usaspending.gov).

Conclusion

This paper has shown that DOD-funded university research is highly concentrated and argued this concentration is due to the use of sole source contracts that allow the DOD to align university research with its technological goals on a long term basis. DOD bureaucrats face incentives to demonstrate success in their research mission by organizing research in ways to promote the production of usable research outcomes and limit disclosure. The result is bureaucrats contracting for research with universities by specifying their demands and restricting the research focus of centers that perform DOD-funded research. Not only do the research centers have their areas of interest determined by the DOD, their designation as UARCs or FFRDCs allows bureaucrats to avoid the process of full and open competition. Most defense R&D spending in universities is awarded on a sole source basis to sponsored research centers.

The core implication that follows from the analysis of this paper relates to the feasibility of policy suggestions commonly given in the literature. Centralized decision making and the concentration of research funding have been found to be a drag on research productivity (Howell et al. 2021; Mongeon et al. 2016). The policy suggestions that tend to follow from these findings include introducing new stakeholders and explicit efforts to reduce concentration as a way to stimulate more innovation. Others have argued that grants can be a more effective tool than contracts to incentivize research effort at the early stages. For instance, Azoulay and Li (2020) suggest that scientific grant funding can be used to build a portfolio of investments for targeted innovation. These policy suggestions do not consider the underlying institutional context that leads to outcomes such as using contracts to limit the number of performers in R&D. Improving our understanding of the institutional setting and incentives that inform R&D policy decisions allows for reframing the kinds of changes necessary to bring about the outcomes suggested by others in the literature. For example, if bureaucrats are evaluated based on outcomes that are less likely to be achieved when using grants, there are limited benefits for the bureaucrat to rely on grants. Assuming the use of grants is a desired change in policy, what this suggests is altering the incentives of decision makers must be considered. In the absence of these considerations, an equally important part of the policy process is being ignored.

In the case of DOD-funded university research, bureaucrats face strong incentives to limit the number of performers and maintain control over the direction of research. The few universities that receive the bulk of this funding also have an interest in protecting those streams of funds. Given these interests, a shift to a more open, more decentralized defense R&D could be achieved by altering the incentives DOD bureaucrats face or placing explicit restrictions on sole source funding. It is unclear, however, whether those changes would be desirable from the perspective of defense policy makers. Though some research has shown the potential for defense R&D to be a source of innovation through spillovers (e.g. Moretti, Steinwender, and Van Reenen 2021), the primary goal is to advance military technology. The aim to advance military technology leads to the direction of research being steered by the specific demands of the DOD and restrictions on research for security purposes. The contracting choices currently made by the DOD reflect those characteristics.

A secondary implication of this paper is that restrictions on defense R&D play a significant role in bureaucratic decision making. Some research has considered only whether classification of research is common. For instance, Howell et al. (2021) suggests very little defense R&D is classified. It is difficult if not impossible to come up with a reliable estimate of the mix between secret and open defense research for obvious reasons, however, if one was to claim that secrecy over research is a small issue, two important aspects of defense R&D policy would be ignored. First is that formal classification is not the only way in which the DOD restricts research outcomes. As discussed in Section 3.2, through CUI and clauses that restrict the publication of research outcomes associated with defense contracts, the DOD can limit disclosure through means other than classification. Second, although the ability to restrict research does not imply that most defense R&D will be kept secret, the concentration of university-performed defense R&D in research centers that prioritize security does suggest that secrecy plays a significant role. The model of organizing defense research in universities more closely follows what Stowsky (2004) refers to as ‘Shielded Innovation’ where performers are tasked to meet specific defense needs and information flow is restricted. Researchers at these centers must obtain security clearances and contracts are designed for the purpose of participating in classified or otherwise restricted research. FFRDCs and UARCs do allow for some research to be published, my claim is not that all research performed is to be restricted. However, the extent of security considerations related to research center performance and within the DOD more generally strongly suggests there are significant constraints placed on the disclosure of defense research in universities.

Acknowledgments The author would like to thank Christopher Coyne, Peter Leeson, Tyler Cowen, Peter Hazlett, Rachael Behr, Greg Caskey, Nathaniel Smith, and Henry Thompson for insightful comments and suggestions. Additional thanks to the Mercatus Center and the Institute for Humane Studies (grant no. IHS016762) for their generous support. Remaining errors should be attributed to the author.

References

This list is incomplete due to a conversion issue with the source file; see the published version for the full reference list.

Aagaard, K., A. Kladakis, and M. W. Nielsen. 2020. “Concentration or Dispersal of Research Funding?” Quantitative Science Studies 1 (1): 117–149. https://doi.org/10.1162/qss_a_00002.

Abrams, R. M. 1989. “The Us Military and Higher Education: A Brief History.” The ANNALS of the American Academy of Political and Social Science 502 (1): 15–28. https://doi.org/10.1177/0002716289502001002.

Azoulay, P., E. Fuchs, A. P. Goldstein, and M. Kearney. 2019. “Funding Breakthrough Research: Promises and Challenges of the ‘ARPA Model’.” Innovation Policy and the Economy 19 (1): 69–96. https://doi.org/10.1086/699933.

Azoulay, P., and D. Li. 2020. “Scientific Grant Funding.” Working Paper No. 26889. National Bureau of Economic Research.

Butos, W. N., and T. J. McQuade. 2006. “Government and Science: A Dangerous Liaison?” Independent Review 11 (2): 177–208.

Carril, R., and M. Duggan. 2020. “The Impact of Industry Consolidation on Government Procurement: Evidence from Department of Defense Contracting.” Journal of Public Economics 184:104141.

Gross, D. P., and B. N. Sampat. 2022a. “Crisis Innovation Policy from World War II to COVID-19.” Entrepreneurship and Innovation Policy and the Economy 1 (1): 135–181. https://doi.org/10.1086/719253.

Gross, D. P., and B. N. Sampat. 2022b. “The World War II Crisis Innovation Model: What was It, and Where Does it Apply?” [Working Paper]. (27909). http://www.nber.org/papers/w27909. doi: 10.3386/w27909.

Gupta, N., B. J. Sergi, E. D. Tran, R. Nek, and S. V. Howieson. 2014. Research Collaborations Between Universities and Department of Defense Laboratories. Report. Institute for Defense Analyses. https://www.ida.org/-/media/feature/publications/r/re/research-collaborations-between-universities-and-department-of-defense-laboratories/ida-d-5230.ashx.

Hall, A. R. 2020. “The Problems of Central Planning in Military Technology.” In The Routledge Handbook of Anarchy and Anarchist Thought, edited by Chad Van Schoelandt and Gary Chartier, 406–415. United Kingdom: Routledge.

Hazlett, P. K., and C. S. Reilly. 2022. “Bureaucratic Rent Creation: The Case of Price Discrimination in the Market for Postsecondary Education.” Constitutional Political Economy 34 (2): 226–256. https://doi.org/10.1007/s10602-022-09365-x.

Howard, D. J., and F. N. Laird. 2013. “The New Normal in Funding University Science.” Issues in Science and Technology 30 (1): 71–76.

Howell, S. T., J. Rathje, J. Van Reenen, and J. Wong. 2021. “Opening Up Military Innovation: Causal Effects of ‘Bottom-up’ reforms to US Defense Research.” NBER Working Paper (W28700).

Katz, Y., and U. Matter. 2020. “Metrics of Inequality: The Concentration of Resources in the US Biomedical Elite.” Science as Culture 29 (4): 475–502. https://doi.org/10.1080/09505431.2019.1694882.

Kealey, T. 1996. The Economic Laws of Scientific Research. Houndmills, Hampshire: Macmillan Press.

Kistiakowsky, V. 1989. “Military Funding of University Research.” The ANNALS of the American Academy of Political and Social Science 502 (1): 141–154. https://doi.org/10.1177/0002716289502001011.

Leslie, S. W. 1993. The Cold War and American Science: The Military-Industrial-Academic Complex at MIT and Stanford. New York, NY: Columbia University Press.

Mills, A. 2021. Fix Science, don’t Just Fund it. Report. American Enterprise Institute.

Mongeon, P., C. Brodeur, C. Beaudry, and V. Larivière. 2016. “Concentration of Research Funding Leads to Decreasing Marginal Returns.” Research Evaluation 25 (4): 396–404. https://doi.org/10.1093/reseval/rvw007.

Moretti, E., C. Steinwender, and J. Van Reenen. 2021. “The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers.” 26483.

Mowery, D. C. 2012. “Defense-Related R&D as a Model for “Grand Challenges” Technology Policies.” Research Policy 41 (10): 1703–1715.

Appendix: Data Description

HERD survey data

Since 1972, the National Center for Science and Engineering Statistics (NCSES)—a division of the National Science Foundation—has conducted the Higher Education Research and Development Survey (HERD) which surveys all universities with R&D expenditures of at least $150 thousand in the fiscal year prior to being surveyed (NCSES 2021a). The purpose of the survey is to collect data on university R&D expenditures, the source of funding for those expenditures, and areas of research. Starting in 2003 the survey includes questions for universities to indicate the federal source of R&D expenditures to which the response can be the Department of Defense, Department of Energy, Department of Health and Human Services, National Science Foundation, National Aeronautics and Space Administration, Department of Agriculture, and a final category for all other agencies. The survey is sent to all universities meeting the $150 thousand R&D expenditure criteria, however, there are some missing data due to non-response. Dollar figures are inflation adjusted to constant 2012 dollars. Individual universities are identified by a unique numerical ID code that is consistent across survey years.

Federal contract and grant data

The second data set is constructed using publicly available federal government contracts and grants from fiscal years 2001 to 2020.²⁹ Transactions included are for R&D contracts, grants, and indefinite delivery vehicles (IDV)³⁰ awarded by all federal agencies to university recipients in the United States. Each observation in the data set is a transaction that may denote all the actions on the contract or grant it is associated with or one of many transactions associated with a single contract or grant. For example, the University of Nebraska may be awarded a contract to perform research over multiple years. A ceiling on funding can be set when the contract is awarded and then funding is obligated using multiple actions each of which would constitute a single transaction (a single observation). In other cases, the contract award and action obligation may happen all at once constituting a single transaction. The data contain information on the recipient associated with a transaction, solicitation procedures, the extent the contract was competed, obligations for the transaction, date of transaction, and the product or service code among other variables not directly used. Research contracts are identified by the product or service code associated with the transaction. Any transaction with an R&D product or service code is included in the data set. The limitation of this strategy is that some transactions that may considered as R&D for budgetary purposes are not counted because they are listed under other service codes that are not explicitly R&D according to the product or service code assigned to the transaction. For instance, support services are one of the functions of university labs performing defense research. While not coded as R&D, these expenditures are related to the overall research mission of the labs and may be funded under federal accounts classified as R&D. Similarly, it is possible that some R&D transactions are funded under federal accounts not considered R&D. As a result, there is likely some measurement error of obligations related to R&D, but the direction of error is unclear. Many observations are missing information for the federal account used to fund the transaction, and so the product or service code approach likely results in fuller coverage of R&D spending. Research grants are identified by the Catalog of Federal Domestic Assistance (CFDA) description associated with the award and are counted if they contain the word “RESEARCH” or “SCIENCE.” University and college recipients are identified in the data set containing contract transactions by having at least one recipient type indicator associated with colleges and universities being coded as “true” or as having the one of the following words in the recipient name: “UNIVERSITY,” “REGENTS,” or “COLLEGE.” Recipients manually determined not to be colleges or universities are dropped from the data set, though given the number of observations in the data set it is likely some are missed and therefore remain in the final data used. Similarly, university recipients are identified in the data set containing grant transactions by the business type description matching one of the several categories for universities (e.g., “public institution of higher education”). Manual removal of non-university recipients was also performed for grant transactions.

Discrepancy in totals across data sets

Spending totals are calculated using the data on obligations made in a fiscal year and adjusted for inflation to match the constant 2012-dollar figures from the HERD data. Contract and grant data include federal obligations for research which do not necessarily equal outlays incurred by an agency. Obligations can be positive or negative such that if obligations do not turn into outlays, they are accounted for with a negative obligation or “de-obligation.” In contrast, dollar figures from the HERD survey data represent the R&D expenditures reported for a fiscal year. Dollar figures (e.g. total DOD R&D spending for universities in a given year) across the two data sets are not equal. The top panel of Figure A1 shows DOD R&D expenditure totals among universities from 2003 to 2020 (solid line) and DOD R&D obligations (contract and grants) among universities from 2001 to 2020 (dashed line). The two series move together and have a correlation coefficient of 0.8. The correlation coefficient between lagged obligations and current R&D expenditures is slightly higher at 0.87. However, there are substantial differences that can be more clearly seen in the bottom panel of Figure A1. The bottom panel shows that in 2013 DOD-funded R&D expenditures reported by universities exceeded DOD R&D obligations to universities by over $1.5 billion. These differences are to be expected as the two data sets are measuring spending on R&D on different timelines. Obligations made in one year by the DOD may not become expenditures for a university until the following year or multiple years later and this will vary across universities.

Figure A1: University reported DOD R&D expenditures from HERD survey 2003-2020 and DOD R&D contract and grant obligations to universities 2001-2020 in millions of constant 2012 dollars (top panel). Difference between HERD expenditures and DOD R&D contract and grant obligations 2003-2020 in millions of constant 2012 dollars (bottom panel). Figure available in the published version. Source: U.S. Government Contracts and Grants (usaspending.gov), NCSES (2021a).

Calculating shares of expenditures in HERD data

Figure 1 reports the share of R&D expenditures reported by the top 20 universities from 2003 to 2020 using data from the HERD survey. The procedure for this calculation is as follows. First, R&D expenditure totals are calculated in each year for the Department of Defense and all other federal agencies (by summing expenditures for Department of Energy, Department of Health and Human Services, National Science Foundation, National Aeronautics and Space Administration, Department of Agriculture, and a final category for all other agencies). Then expenditure totals by university and year are calculated for the DOD and all other federal agencies. For each year, a university’s share of total expenditures is calculated by dividing expenditures reported by the university from the DOD and other federal sources by total expenditures for the DOD and all other federal agencies, respectively. Once expenditure shares are calculated, I take the top 20 universities in each year and sum their shares of total expenditures.

Calculating share of DOD R&D obligations awarded to universities with research centers

Similar to the calculation described above, Figure 4 shows the share of all contract and grant obligations awarded by the DOD to universities with DOD-sponsored research centers. There are 16 universities are included in the calculation: Carnegie Mellon University, Georgia Institute of Technology, Johns Hopkins University, Massachusetts Institute of Technology, Pennsylvania State University, Stevens Institute of Technology, University of Alaska, University of California Santa Barbara, University of California Santa Cruz, University of Hawaii, University of Maryland College Park, University of Nebraska, University of Southern California, University of Texas at Austin, University of Washington, and Utah State University. Each university is identified using the recipient name in the contract and grants data sets and the recipient Unique Entity Identifier (UEI), a number assigned by the federal government to contract and assistance recipients. In some cases, recipient name and UEI were too ambiguous to identify the university with a research center. This was particularly the case for universities such as the University of California and the University of Texas where those universities are part of large state systems with many campuses. In these cases, narrowing down transactions only to the campuses with DOD-sponsored research centers was achieved by using the recipient city as an additional identifier. For example, the UARCs within the University of California System are on the Santa Barbara and Santa Cruz campuses. If a transaction was ambiguously awarded to the University of California or Regents of the University of California, it was only counted if the recipient city was also Santa Barbara or Santa Cruz. Doing this avoided over counting obligations awarded to the same university system but not to those universities with a sponsored research center. Obligations were also only counted in the year a research center was established and subsequent years. The research centers at Carnegie Mellon, Georgia Institute of Technology, Johns Hopkins University, Massachusetts Institute of Technology, Pennsylvania State University, University of Southern California, University of Texas, University of Washington, and Utah State University were all established prior to 2001. Obligations for these universities are counted in all years from 2001 to 2020. Several other research centers were established after 2001 including those at (year established in parentheses): Stevens Institute of Technology (2008), University of Alaska (2018), University of California Santa Barbara (2003), University of California Santa Cruz (2003), University of Hawaii (2008), University of Maryland (2003), and University of Nebraska (2012). Obligations for these universities were only counted in the year the research center was established and subsequent years. Total contract and grant obligations awarded by the DOD are calculated in each year. Then, total obligations awarded to each of the universities with a research center are calculated in each year. These two calculations are used to find the share of obligations awarded to the research centers.

BibTeX

@article{reilly2025you,
  author = {Chandler S. Reilly},
  title = {You Work For Us Now: Concentration in University-performed Defense R&D},
  journal = {Defence and Peace Economics},
  year = {2025},
  volume = {36},
  number = {5},
  pages = {761–788},
  doi = {10.1080/10242694.2024.2394762},
}