The Matthew effect,research productivity,and the dynamic allocation of NIH grants

Funding is important for research. However, research funding may suffer from the Matthew effect: the more researchers already have, the more they will be given. I develop an empirical framework to study how the National Institutes of Health (NIH) could allocate funding in a dynamically optimal manner by balancing funds between young and veteran principal investigators (PIs). I find that the discount factor that rationalizes NIH's funding behavior is about 0.75, implying it may underfund young PIs. Moreover, a temporary funding cut would have long-lasting effects on overall research output through its adverse impact on investment in young PIs.