The research policy community has produced a significant body of empirical research on benefits of cooperative research between industry and university. However, in spite of a lively policy debate on the subject, it has all but ignored empirical study on the "costs" or unintended consequences of these activities (e.g., erosion of academic freedom). in fact, only four empirical articles assessing various "costs'' were found in the literature. The current study attempted to inform the debate about benefits vs. costs of cooperative research by examining the impact of source of funding (industry, government and no external sponsor) and form of funding (single source, consortial, or unfunded) on a variety of research processes and outcomes for a particularly vulnerable population - graduate students; it also involved the development and evaluation of a measure of "climate for academic freedom". The study used a purposive stratified sample of graduate students from the same two engineering departments at six US universities (N = 482). Although some minor differences were found, the results failed to support claims that sponsorship by industry negatively affect student experiences or outcomes. Consistent with the predictions of some observers, the most striking differences were observed between sponsored projects and projects with no external sponsor. Exploratory analyses identified several variables that do explain differences in perceived "climate for academic freedom''. Implications of these findings for research policy and future research on unintended consequences are discussed. (C) 2001 Elsevier Science B.V. All rights reserved.