Performance-based research funding: Evidence from the largest natural experiment worldwide

A performance-based research funding system (PRFS) is a nationwide incentive scheme that promotes and rewards university research performance through competition for government funding. The UK's PRFS, currently the Research Excellence Framework (REF), is considered the oldest, largest and most developed payment-by-results system in academia worldwide. Surprisingly, and despite the strong criticisms, little has been done to quantitatively and casually evaluate the intended and unintended effects of the PRFSs. In this paper, we evaluate the incremental impact of the REF 2014 in the fields of Economics and Business. We use a synthetic control method to compare the performance of UK universities with their artificial counterfactual units constructed using data from US universities. Our analysis shows, on the whole, that the introduction of the REF had a significant and positive impact on the quantity and quality of the scientific research produced at UK universities. However, we do not find a significant effect on the per author measures, suggesting that the REF did not result in an increase in research productivity. We also show that the effects are more heterogeneous across universities than across academic disciplines. We do not find evidence of a shift of research focus from Economics to Business topics, as some feared. But our analysis indicates that the REF 2014 may have contributed to the concentration of research excellence in elite institutions.