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Levy-funded research choices by producers and society

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Author Info

  • Alston, Julian M.
  • Freebairn, John W.
  • James, Jennifer S.

Abstract

Commodity levies are used increasingly to fund producer collective goods such as research and promotion. In the present paper we examine theoretical relationships between producer and national benefits from levy‐funded research, and consider the implications for the appropriate rates of matching government grants, applied with a view to achieving a closer match between producer and national interests. In many cases the producer and national optima coincide. First, regardless of the form of the supply shift, when product demand is perfectly elastic, or all the product is exported, domestic benefits and costs of levy‐funded research all go to producers and they have appropriate incentives. Second, if research causes a parallel supply shift, the producer share of research benefits is the same as their share of costs of a levy, and their incentives are compatible with national interests. In such cases, a matching grant would cause an over‐investment in research from a national perspective. However, if demand is less than perfectly elastic, and research causes a pivotal supply shift, the producer share of benefits is smaller than their share of costs of the levy, and they will under‐invest in research from a national point of view. A matching grant can be justified in such cases, however the magnitude of the optimal grant is sensitive to market conditions.

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File URL: http://purl.umn.edu/117861
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Bibliographic Info

Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 48 (2004)
Issue (Month): 1 (March)
Pages:

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Handle: RePEc:ags:aareaj:117861

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Related research

Keywords: Research and Development/Tech Change/Emerging Technologies;

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References

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  1. Moschini, GianCarlo & Lapan, Harvey E., 1997. "Intellectual Property Rights and the Welfare Effects of Agricultural R & D," Staff General Research Papers 5048, Iowa State University, Department of Economics.
  2. Martin, Will & Alston, Julian M, 1997. "Producer Surplus without Apology? Evaluating Investments in R&D," The Economic Record, The Economic Society of Australia, vol. 73(221), pages 146-58, June.
  3. Duncan, R & Tisdell, Clem, 1971. "Research and Technical Progress: The Returns to Producers," The Economic Record, The Economic Society of Australia, vol. 47(117), pages 124-29, March.
  4. Xueyan Zhao, 2002. "Who Bears the Burden and Who Receives the Gain? - The Case of GWRDC R&D Investments in the Australian Grape and Wine Industry," Monash Econometrics and Business Statistics Working Papers 15/02, Monash University, Department of Econometrics and Business Statistics.
  5. James F. Oehmke & Eric W. Crawford, 2002. "The Sensitivity of Returns to Research Calculations to Supply Elasticity," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 366-369.
  6. Xueyan Zhao & John Mullen & Garry Griffith & Roley Piggott & William Griffiths, 2003. "The incidence of gains and taxes associated with R&D and promotion in the Australian beef industry," Agribusiness, John Wiley & Sons, Ltd., vol. 19(3), pages 333-344.
  7. Campbell, H F & Bond, K A, 1997. "The Cost of Public Funds in Australia," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 22-34, March.
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Citations

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Cited by:
  1. Pardey, Philip G. & James, Jennifer S. & Alston, Julian M. & Wood, Stanley & Koo, Bonwoo & Binenbaum, Eran & Hurley, Terrance M. & Glewwe, Paul & Mayer, Jorge & Jones, Richard & De Groote, Hugo & Kana, 2007. "Science, Technology and Skills," Reports 136256, University of Minnesota, International Science and Technology Practice and Policy.
  2. George Verikios, 2006. "Understanding the World Wool Market: Trade, Productivity and Grower Incomes. Part 5: Relative Returns to Australian Wool Producers of On- and Off-Farm Research," Economics Discussion / Working Papers 06-23, The University of Western Australia, Department of Economics.
  3. Davis, Jeff & Bantilan, Ma Cynthia & Nedumaran, Swanikannu & Charyulu, Deevi Kumara, 2014. "The importance of disaggregation for understanding research impacts and modelling adoption," 2014 Conference (58th), February 4-7, 2014, Port Maquarie, Australia 165820, Australian Agricultural and Resource Economics Society.
  4. 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.
  5. James, Jennifer S. & Pardey, Philip G. & Alston, Julian M., 2008. "Agricultural R&D Policy: A Tragedy of the International Commons," Staff Papers 43094, University of Minnesota, Department of Applied Economics.
  6. Alston, Julian M. & Pardey, Philip G., 2007. "Public Funding for Research into Specialty Crops," Staff Papers 7312, University of Minnesota, Department of Applied Economics.

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