New Insights on the Organization of Agricultural Research: Theory and Evidence for Western Developed Countries

Public and private R&D are important sources of advances in knowledge leading to new technologies for and products from agriculture in western developed countries. Over the past fifteen years, a significant reduction in the rate of growth of public funding for agricultural research in western developed countries has occurred relative to the preceding decade. The future, however, holds unexplored options for the organization of public agricultural research. Advances in the theory of impure public goods can be applied to create new financing jurisdictions and funding sources for public agricultural research. Advances in principal-agent theory can be applied to the unique characteristics of the R&D production process, i.e., output is highly uncertain and administrators cannot effectively monitor scientists' effort, to design incentive compatible contracts that significantly improve scientists' attention to effort and quality of research payoffs. Some implications for alternative finding mechanisms are developed. The paper concludes with several new insights about the likely organization of agricultural research in western developed countries for the 21st century.