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The Calculation of Returns to Research in Distorted Markets

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  • James F. Oehmke

Abstract

Most of the empirical literature calculating rates of return to publicly sponsored research assumes that research is the only relevant government intervention. For most countries this assumption is untenable. This paper shows that improperly measuring government induced market distortions can severely bias research rate of return calculations. If the interaction between successful research and other government interventions increases the cost of the other interventions, then neglecting market distortions unambigously increases the calculated rate of return. Three examples of government induced distortions show that the magnitude of the upward bias in calculated rates of return can be extremely large ‐ in some cases more than 100 percentage points. A normative implication is that governments should account for interactions between research and price interventions when determining research support levels. A positive implication is that existing government research funding patterns are more readily explainable as reasonable behavior by a government that accounts for these interactions.

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  • James F. Oehmke, 1988. "The Calculation of Returns to Research in Distorted Markets," Agricultural Economics, International Association of Agricultural Economists, vol. 2(4), pages 291-302, December.
    • Handle: RePEc:bla:agecon:v:2:y:1988:i:4:p:291-302
    DOI: 10.1111/j.1574-0862.1988.tb00060.x
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    Cited by:

    1. Mohamed M. Ahmed & William A. Masters & John H. Sanders, 1995. "Returns from research in economies with policy distortions: hybrid sorghum in Sudan," Agricultural Economics, International Association of Agricultural Economists, vol. 12(2), pages 183-192, April.
    2. Oehmke, James F. & Crawford, Eric W., 2004. "Analysis Of Projects With Price Effects, And Application To Innovation And Technical Change," Staff Paper Series 11766, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    3. A. C. Herruzo, 1992. "Producer Benefits From Technology Induced Supply Shifts In The Ec Cotton Regime," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(1), pages 56-63, January.
    4. Fuglie, Keith & Ballenger, Nicole & Rubenstein, Kelly Day & Klotz, Cassandra & Ollinger, Michael & Reilly, John & Vasavada, Utpal & Yee, Jet, 1996. "Agricultural Research and Development: Public and Private Investments Under Alternative Markets and Institutions," Agricultural Economic Reports 262031, United States Department of Agriculture, Economic Research Service.
    5. Michael Harris & Alan Lloyd, 1991. "The Returns to Agricultural Research and the Underinvestment Hypothesis ‐ A Survey," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 24(3), pages 16-27, July.
    6. Gardner, Bruce L., 1992. "Price Supports and Optimal Spending on Agricultural Research," Working Papers 197793, University of Maryland, Department of Agricultural and Resource Economics.
    7. Raitzer, David A. & Kelley, Timothy G., 2008. "Benefit-cost meta-analysis of investment in the International Agricultural Research Centers of the CGIAR," Agricultural Systems, Elsevier, vol. 96(1-3), pages 108-123, March.
    8. Lee, D. & Rausser, Gordon C., 1992. "The Structure of Research and Transfer Policies in International Agriculture: Evidence and Implications," Staff General Research Papers Archive 717, Iowa State University, Department of Economics.
    9. Radhakrishnan, Manju & Islam, Nazrul & Ward, Glynn, 2009. "Measuring the benefits from R&D investment beyond the farm gate: the case of the WA wine industry," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48169, Australian Agricultural and Resource Economics Society.
    10. Fertő, Imre, 1998. "Az agrárpolitika politikai gazdaságtana III. Vegyes motívumok az agrárpolitikában: termelő és ragadozó politikák [The political economy of agrarian policy. Part III. Mixed motives in agrarian polic," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 424-436.
    11. Alston, Julian M. & Pardey, Philip G., 2000. "Reassessing Research Returns: Attribution and Related Problems," 2000 Conference, August 13-18, 2000, Berlin, Germany 197205, International Association of Agricultural Economists.
    12. Frisvold, George B. & Sullivan, John & Raneses, Anton, 2003. "Genetic improvements in major US crops: the size and distribution of benefits," Agricultural Economics, Blackwell, vol. 28(2), pages 109-119, March.
    13. Alston, Julian M. & Pardey, Philip G., 2001. "Attribution and other problems in assessing the returns to agricultural R&D," Agricultural Economics, Blackwell, vol. 25(2-3), pages 141-152, September.

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