Current research

Does More Money Lead to More Innovation? Evidence From the Life Sciences

Marc J. Lerchenmueller

Large sums are often invested into scientific innovation – the creation of new knowledge through scientific research. In this paper, we argue that increasing investments may lead scientists to pursuing average (but more certain) as opposed to higher risk projects, with negative consequences for scientific innovation. Exploiting an exogenous multi-billion dollar shift in the budget of the world’s largest financier of scientific research, the U.S. National Institutes of Health (NIH), we find that the influx of more money led to a  significant decrease in scientists’ innovation productivity (about 15% fewer papers published), its significance (about 15% less citations generated), and novelty (about 10% reduction in unprecedented content). These negative effects become more pronounced when we, in addition to the macro level (federal budget), also account for differences in funding at the micro level (project budget). The decrease in scientific innovation is primarily driven by top scientists changing their research strategy with greater funding availability; the data reveal an about 1.5x to 3x larger reduction in scientific innovation for scientists in the top quintile versus scientists in lower quintiles of the capability distribution. We conclude with implications for public policy, corporate strategy, and the allocation of resources in support of scientific innovation.