Opening up Military Innovation: Causal Effects of Reforms to U.S. Defense Research

How should governments procure innovation? One choice facing policymakers is whether to tightly specify the innovations they seek (a “Conventional” approach) or to allow firms to suggest ideas (an “Open” approach). We study a natural experiment in the U.S. Air Force Small Business Innovation Research (SBIR) program where Open and Conventional competitions were held simultaneously. We compare them using within-competition regression discontinuity designs on administrative data. Open awards increase desired outcomes; they lead to more adoption of new technologies, measured by (non-SBIR) defense contracts, and more commercial innovation, measured by VC funding and patenting. In contrast, Conventional awards have no effects on these outcomes but do create lock-in through increasing the chances of winning a future SBIR award. The Open program succeeded in its aim of attracting new types of firms, but we demonstrate that openness has a differential impact beyond inducing selection: (i) comparing specific and non-specific Conventional topics; (ii) examining firms that applied to both Open and Conventional programs; and (iii) comparing Open with two other reform programs that attracted similar types of firms to Open but used specific topics. Overall, the results point to benefits from open approaches to innovation procurement.