How to Set Budget Caps for Competitive Grants

By Alessandro De Chiara, Elisabetta Iossa

Abstract

We study how funding agencies should set budget caps for competitive grants. We show that budget caps influence the researchers’ submission strategy and, in particular, whether they steer their project choice towards the agencies’ favorite projects, and the level of funds they request. The welfare impact of alternative approaches depends on the level of competition, the cost of public funds and the social value of project implementation.

Keywords: Competitive Grants, Procurement of Innovation, Project Choice, Research Funding, Research Tournament.

JEL Classification: D8, O25, O30, O31, O38, L2.