Fact of the Week: When Universities Invest In R&D, They Can Generate Returns For Themselves Of Up To 9 Percent

November 22, 2016

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Universities prioritize creating knowledge over innovating, and in doing so they rarely commercialize their inventions. In fact, if universities were instead focused on translating their pools of knowledge into valuable technologies, they would gain sizable revenue.

Haris Tabakovic and Thomas Wollmann, business professors at Harvard University and the University of Chicago, respectively, estimated the dollar returns of university investments in R&D. By tracking technology licensing agreements between universities and industry, they find that a 1 percent increase in university R&D investment generates 4 to 5 percent in upfront returns. From further analysis of university technology licenses’ costs and revenues, the economists estimate that university R&D investments ultimately generate up to 9 percent in total return-on-investment.

Although universities can create valuable commercial technologies on their own, that isn’t their main aim. Universities’ role in innovation predominantly involves investing in basic scientific research and development to broaden society’s pool of scientific knowledge—the building blocks of new products and processes. Therefore, government must continue to support programs such as the National Science Foundation’s Industry/University Cooperative Research Centers Program, which combines the expertise of universities and industries to further American innovation by translating basic science into commercial applications.