Designing Scientific Grants

TL;DR

This paper analyzes the economics of scientific grants, focusing on incentive issues, design strategies, and the impact of different allocation methods to improve research funding effectiveness.

Contribution

It provides a comprehensive overview of grant design challenges and offers economic insights and guidance for optimizing scientific funding mechanisms.

Findings

Staged grant design enhances research productivity

Lottery mechanisms can be effective in grant allocation

Incentive problems vary across different funding stages

Abstract

This paper overviews the economics of scientific grants, focusing on the interplay between the inherent uncertainty in research, researchers' incentives, and grant design. Grants differ from traditional market systems and other science and innovation policy tools, such as prizes and patents. We outline the main economic forces specific to science, noting the limited attention given to grant funding in the economics literature. Using tools from information economics, we identify key incentive problems at various stages of the grant funding process and offer guidance for effective grant design. In the allocation stage, funders aim to select the highest-merit applications while minimizing evaluation costs. The selection rule, in turn, impacts researchers' incentives to apply and invest in their proposals. In the grant management stage, funders monitor researchers to ensure efficient use of funds. We discuss the advantages and potential pitfalls of (partial) lotteries and emphasize the effectiveness of staged grant design in promoting a productive use of grants. Beyond these broadly applicable insights, our overview highlights the need for further research on grantmaking. Understudied areas include, at the micro level, the interplay of different grant funding stages, and at the macro level, the interaction of grants with other instruments in the market for science.