The overhead paradox: full-cost recovery and the competitiveness of university–industry research collaboration

Universities play a central role in modern innovation systems by making fundamental discoveries, providing specialised expertise and sustaining the research infrastructure that underpins technological innovation. Collaboration between universities and industry is therefore widely recognised as an important mechanism for translating scientific discoveries into technological and societal applications. In recent decades, however, many universities have adopted full-cost recovery models for externally funded research to recover the institutional overheads associated with research infrastructure, administration and regulatory compliance. While these policies support the financial sustainability of research institutions, they may also influence the competitiveness of academic laboratories as partners in industrial research. In research markets where companies can choose among universities, contract research organisations and other providers, differences in pricing may influence where firms conduct their research and development (R&D). We provide a conceptual explanation of this structural tension, which we term the ‘overhead paradox’, whereby policies designed to sustain university research systems through full-cost recovery may simultaneously reduce universities’ competitiveness as partners in industry-sponsored research.