Description:

Marco Ottaviani (Bocconi): “Grantmaking” with Jerome Adda

Abstract: The paper develops a model of non-market allocation of resources through grantmaking. On the supply side, the available budget of grants is awarded to applicants who are evaluated most favorably according to the noisy information available to reviewers. On the demand side, stronger candidates are more likely to obtain grants and thus self-select into applying. Leveraging a technique based on the quantile function, we characterize a broad set of allocation rules under which an increase in evaluation noise in a field raises applications in that field—and reduces applications in all other fields. We illustrate the practical relevance of the model by exploiting a change in the budget allocation rule at the European Research Council, showing that a one standard deviation increase in own evaluation noise leads to a 0.3 standard deviation increase in the number of applications and budget share. We also derive some subtle implications for the design of grantmaking institutions in terms of the endogenous choice of noise by fields and the optimal pooling of fields into panels.