Research and Development/Tech Change/Emerging Technologies,

Peterson, Willis L.

English

Research Papers in Economics

“. . . -,
staff I]apers series
21XFF PAPER.l?79-4 FEBRUART 1979
,-
. ...
.
L—————— --Sources of Differences in Rates of Return to
Agricultural Research Between Countries:
Some General Observations*
Willis Peterson
Differences in rates of return to agricultural research between
countries can be attributed to three major factors. The first is the
production elasticity of research when research is viewed as a
separate variable in an agricultural production function. Or if one
wishes to evaluate research by the “consumer surplus” approach as in
Griliches hybrid corn study it is the “k.”value. Other things equal,
the larger the production elasticity or “k” value, the more productive
the research and the greater its rate of return.
The second factor is the value of agricultural output that is
influenced by the research. In the context of a Cobb-Douglas pro-
duction function, this factor is the average product of research--
dollars of associated agricultural output per dollar of research.
Using the consumer surplus approach, it is the ‘absolute value of
the associated agricultural output (the PQ in the formula developed
by Griliches) in relation to the expenditures on research. Other
things equal, the lar~;er the average product, or the PQ in relation
to research expenditures, the larger the rate of return to invest-
ment in research.
These two factors determine the VMP of research. If we want
to convert the VI@ into a rate of return then we must take into
account the lag between research and the corresponding increase in
output . Other things equal, the longer the lag, the lower the
rate of return to research.
.—
*Paper presented at a Ford Foundation Workshop on “Seeking Explanations
for Different Rates of Return to Agricultural Research” New York,
N.Y. , Feb. 2, 1979.
Staff papers are published without formal review within the Department
of Agricultural and Applied Economics.-2-
Although these three factors can be helpful in organizing our
thoughts on the question, a full understanding of the sources of dif-
ferences in rates of return can be obtained only by asking ~_ do
these factors differ between states, regions, or countries (if they do).
Differences in the production elasticity (or k value) of research
can be attributed to a number of variables. Perhaps most obvious is
the skill or competence of scientists. This in turn depends both on
inherent ability and acquired skills. For differences between nations,
the latter is likely to be most important. In regard to this point it
ought to be mentioned that the way in which research effort i13
measured likely will influence its production elasticity or k value.
If research is measured by scientific manyears unadjusted for quality
differences, we should expect to observe more differences in the
productivity of research between states or countries than if effort
is measured by monetary cost. The labor market for scientists is not
likely to be completely oblivious to differences in quality. The
better ones Ukely earn more than the poorer ones, although d:Lfferences
in pay probably doesn’t reflect the full difference in productivity.
There is a related question of how to measure the scientific input
in monetary terms in a cross-country production function where there
are large differences between countries in the average level of
salaries. When inputs or output are measured in value terms, one
should use constant prices (adjusted for quality) cross sectionally
as well over time for the purpose of estimating the coefficients
in a production function. Then one can compute the VMP of sc:Lentific
effort for individual countries by using internal prices say to-3-
determine average products in the Cobb-Dou@as frameworlc. It seems to
me that the greatest problem of estimating a cross-county production
function is to measure input quality differences between countries.
The production elasticity of research also can vary because of
differences of supporting facilities (computers, etc.) and personnel
and by differences in administrative organization and size of the
research units. For example, it has been argued that scientists are
more productive when research is combined with teaching, particularly
at the graduate level. And if there are economies of scale to research
the production elasticity of research should be larger for larger
research units. One shouldn’t neglect to mention the adverse role
of politics or ideology on scientific output if it reduces freedom
of inquiry or exchange of information. The level of complementary
inputs, suchas the effect of basic research on the output of applied
scientists~ no doubt is important in determining the productivity of
scientists. One should include here the likely effect of private
R & D of the farm supply industries on the research done by public
institutions. If we only include public research in the production
function, its coefficients should be higher in countries where private
R & D is above the mean of the group or sample. Related to this is
the import of scientific information. One might expect nations which
are net importers of information and do primarily adaptive research
to exhibit a larger production elasticity of research than nations
which produce knowledge from “scratch”.
It also should be recognized that the productivity of scientists,
at least as measured by the production elasticity of research in an
aggregate agricultural production function or by its “k” value, is in-4-
large part dependent on the profitability of the farm supply industries
and of agriculture. If it doesn’t pay the farm supply industries to
produce or farmers to buy complementary inputs which increase the VMP
of research, the new knowledge may not have an observed effect on
agricultural output. For example, yield increases of new varieties
are likely to require the use of more fertilizer and chemicals. Indeed
the research which makes possible the production or use of these new
high pay-off inputs may not even be done if they are not profitable.
Instead the scientific efforts may take the form of refining old
techniques or trying to make good farmers out of poor ones. Historically
these efforts have had a relatively small impact on agricultural
output .
Although education of farm people has been thought of primarily
as a means of speeding up the adaption of new technology, it 1s
possible that iC can also affect the production elasticity of research.
For example the level of schooling not only of farmers but also of
farm supply industry personnel probably limits the kind of knowledge
that can be utilized from other countries.
The production elasticity or “k” value of research also can be
influenced by differences in the difficulty of the problem being
worked on. For example, it is easier to produce hybrid corn than
hybrid wheat.
Many of the above factors which can affect the production
elasticity of research are likely to average out between research
organizations within a given country. Indeed we could find no
significant difference in the production elasticity of research-5-
between U.S. experiment stations when grouped by levels of their
average products (of research). However because of rather large
differences between countries in the level of inputs which are
complementary to applied agricultural research as well as large
differences in organizational, political, and economic factors,
one would be surprised to find the same thing in cross country
obsemations. Off hand, one might think that the production
elasticity would be higher for the DCS than the LDCS because of
better training of scientists, higher farm prices,
more complementary inputs from the farm supply industries, more
freedom of scientific inquiry, better communications and research
facilities, and a higher level of education of farm people and farm
supply industry personnel. One offsetting factor would be the net
import of knowledge by the LDCS.
Turning now to the second mjor factor affecting the rate of
return to agricultural research, namely its average product or
dollars of related output per dollar of research, we can say that
if research is subject to diminishing returns, then other things
equal the greater the investment. in research in a given country
the lower itisVM? and rate of return. It seems reasonable to
believe that in the short run particularly for narrowly defined
research areas diminishing returns set in. It is not so clear
over the long run especially for agricultural research in the
aggregate. In this case the production of complementary inputs
to current research, mainly past discoveries, may increase its
production elasticity thereby offsetting a declining average-6-
product (if research is increasing faster than agricultural output).
At any rate i.fthe IMP of research declines as its level increases,
one might expect on the basis of this factor that the marginal rate
of return to investment in agricultural research would be higher in
the LDCS than the DCS because of the lower level of research expendit-
ures in the latter countries.
It is interesting to note that there appear to be substantial
differences in the VMP of agricultural researcl~ both within and
between experiment stations (states) in the U.S. becausie of large
differences in the average products of research. However, in this
case the smaller average products tend to be associ.atecl with
smaller levels of research (Table 1).
According to the Boyce and Evenson data the above relationship
does not appear to hold true between geographic groupings of nations.
J% shown in Table 1, the simple average of average prc)ducts for
Western Europe and North America is about $89 whereas the comparable
figure for the remaining re~ions is $109, although there are
substantial differences between regions. One observes regions
containing primarily LDCS which exhibit figures that are both above
and below the values for Western Europe and North America. Of
course prices of both agricultural output and research inputs have
a great deal to do with the average product figures Considering the
depressed level of agricultural product prices in most LDCS, one
might expect their average product figures to be substantially
higher if world market prices were to prevail in these countries.-7-
Table 1. *Dollars of Agricultural Output per Dollar of Public
Agricultural Research, 1969,Selected States
Ohio
Indiana
Illinois
Wisconsin
Minnesota
Iowa
Kansas
Arkansas
Oklahoma
Wyoming
Washington
California
U.S. Average
Dairy
$295
234
170
1037
946
307
124
79
195
39
213
379
261
Cash
Grains
$305
356
979
65
320
259
274
484
180
58
241
150
200
Poultry
$154
312
207
138
298
183
42
1089
179
13
72
317
221
Livestock . ——
$160
324
389
126
763
607
529
86
245
113
92
184
196
Source: Computed from Maury Bredahl and Willis Peterson,
“The Productivity and Allocation of Research:
U.S. Agricultural Experiment Stations” AJAE,
Nov. 1976, Table 7 p. 690.-8-
Table 2. *Dollars of Agricultural Product Per Dollar of Public
Agricultural Research, 1974.
Northern Europe
Central Europe
Southern Europe
Eastern Europe
USSR
Oceania
North America
Temperate So. America
Tropical So. America
C. America & Caribbean
$76
100
100
87
66
24
79
78
97
141
North Africa
West Africa
East Africa
South Africa
West Asia
South Asia
S.E. Asia
East Asia
$139
89
61
69
120
322
204
32
*source: Computed from James Boyce and Robert Evenson,
&ricultural Research and Extension Programs, ADC,
New=ork, N.Y. 1975, table 2.7, p. 46.-9-
Of course, even if LDCS were to exhibit substantially higher average
products of research, their VMPs need not be higher if the production
elasticities or “k” values of their research are lower. Indeed even
if the VMPs and rates of returns are higher for the LDCS than the
DCs, one still must consider the rates of return to alternative
investments in the LDCS before concluding that they should increase
investment in agricultural research. Rates of return to agricultural
research should be equalized between nations only if the rates of
return to all other investments are equal.
Even if it turns out that the rate of return to agricultural
research in the LDCS are higher than alternative investments, one
must also face the problem of availability of resources. Taking
Into account differences in per capita income and population per
hectare of agricultural land, the allocation of resources to public
agricultural research does not appear to be significantly smaller
in the LDCS
that we are
investment.
1/
than in the DCs.— Therefore, it does not seem likely
about to observe large increases in LDC agricultural research
At the present time bringing prices of output and
inputs (particularly fertilizer) in the T.DCS to the levels that
exist in the DCS would seem to offer greater hope for increasing
agricultural output in.tihesecountries than achieving an equillzation
of rates of return to agricultural research.
The third factor affecting the rate of return to agricultural
research, namely the lag between the research inputs and agricultural
~/ Willis Peterson, “International l?armPrices and the Social
Cost of Cheap Food Policies” Forthcoming AJAE, February 1979.-li)-
output, probably is not a major source of differences in rates of
return to research between countries although this statement borders
on a sheer guess because of the absence of sny international
measurements of lags.

SOURCES OF DIFFERENCES IN RATES OF RETURN TO AGRICULTURAL RESEARCH BETWEEN COUNTRIES: SOME GENERAL OBSERVATIONS

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics