The direction of technical change in AI and the trajectory effects of government funding

Government funding of innovation can have a significant impact not only on the rate of technical change,\r\nbut also on its direction. In this paper, we examine the role that government grants and government\r\ndepartments played in the development of artificial intelligence (AI), an emergent general purpose technology\r\nwith the potential to revolutionize many aspects of the economy and society. We analyze all AI\r\npatents filed at the US Patent and Trademark Office and develop network measures that capture each\r\npatent’s influence on all possible sequences of follow-on innovation. By identifying the effect of patents on\r\ntechnological trajectories, we are able to account for the long-term cumulative impact of new knowledge\r\nthat is not captured by standard patent citation measures. We show that patents funded by government\r\ngrants, but above all patents filed by federal agencies and state departments, profoundly influenced the\r\ndevelopment of AI. These long-term effects were especially significant in early phases, and weakened over\r\ntime as private incentives took over. These results are robust to alternative specifications and controlling\r\nfor endogeneity.