For all the hand wringing about the perceived decline of American scientific research, the U.S. is still the envy of much of the rest of the world -- notably Europe, which has been beating itself up about its "innovation gap" compared with its cross-Atlantic competitor, especially when it comes to "frontier," or path breaking, research.

But as leaders and university officials in numerous European countries and across the continent debate whether and how to alter research programs and policies to make them more like their U.S. counterparts, several American and European economists offer a cautionary note in a paper issued by the National Bureau of Economic Research.

Examining the interplay of university research output, the governance of research institutions, and how they are funded in the U.S. and Europe, the researchers conclude that when presented with an increase in outside funding, public universities use that money more productively if they have more autonomy and more frequently compete with private universities for research dollars.

While the researchers frame their study primarily to inform the discussion about how Europe might alter its system of funding scholarly science, their conclusion has implications for state and federal officials deciding how to allocate their own grant money. That's especially true on the hotly contested terrain of peer reviewed, competitive studies vs. those earmarked, or mandated, by lawmakers.

"The most natural overall interpretation of our results is that frontier research is a complex thing that a university can only pursue effectively if it has the discretion to direct resources and researchers toward what it believes are the most promising paths," they write. "Universities will put more effort into directing resources well if they know that rewards are allocated based on competition, especially competition that is strictly merit-based."

The researchers, who include Stanford University's Caroline M. Hoxby, Harvard's Philipp Aghion, and three European scholars, build their case through a complex series of analyses that this "economics for dummies" article (a reference to this reporter, not his readers) cannot do justice. They begin by showing that in both Europe and the United States, the performance of universities -- gauged by their representation in international rankings of research output and -- correlates to their autonomy and competitive environment; in other words, universities in some European countries and certain states in the U.S. perform better on output measures, and those that thrive tend to be more autonomous and face more competition for funds with private institutions.

Those correlations are insufficient to prove categorically the researchers' theses that "university autonomy and competition cause higher output," they note. "Reverse causality is quite plausible: Perhaps governments allow very productive universities to be more autonomous and such universities campaign for resources to be allocated by competition, rather than rules."

So they turn to analyses designed to prove cause and effect, focused on the United States. They map changes in the membership of Congressional and state legislative appropriations committees -- which they characterize as creating "crucial, arbitrary shocks" that produce significant increases in the research funding levels for some universities -- against how successful various institutions were in translating the increased research grants into patents.

And they find that "exogenous increases in expenditures of U.S. universities generate more patents if the universities in question are more autonomous and face more local competition (for resources, faculty, and students) from private institutions."

The last piece of the puzzle for the researchers is an analysis showing that universities of all types become proportionally more productive (in terms of turning out patents) at "higher stakes" times -- times when competitive research funds rise.

Taken together, they write, "[t]hese results suggest that autonomy and market competition improve universities' research output more when those universities can see that research effort is richly rewarded through merit-based competitions. In other words, policy makers may have a role to play by focusing universities' competition on research, as opposed to politics or other activities. Universities are induced to use their autonomy productively when they operate in a high stakes, competitive research environment."