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Re-Examining the Reported Rates of Return to Food and Agricultural Research and Development: Reply

Author

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  • Terrance M. Hurley
  • Xudong Rao
  • Philip G. Pardey

Abstract

Hurley, Rao and Pardey (2014) analytically and empirically evaluate the internal rate of return (IRR) vis a vis the modified internal rate of return (MIRR) for investments in agricultural research and development (R&D). They find that estimates of the IRR are 2.5 to 5 times larger than the MIRR for a wide range of assumptions, leading them to question the value of the IRR as a metric to represent the rate of return to agricultural R&D. Oehmke (2016) defends the IRR by arguing that it has important properties that the MIRR does not possess. In this article, we critically examine these properties demonstrating that some are not inherent to the MIRR. For other properties, we simply disagree with Oehmke’s assessment of their desirability. Therefore, we are not compelled to change our original recommendation.

Suggested Citation

  • Terrance M. Hurley & Xudong Rao & Philip G. Pardey, 2017. "Re-Examining the Reported Rates of Return to Food and Agricultural Research and Development: Reply," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 827-836.
    • Handle: RePEc:oup:ajagec:v:99:y:2017:i:3:p:827-836.
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    File URL: http://hdl.handle.net/10.1093/ajae/aaw079
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    References listed on IDEAS

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    1. Hurley, Terrance M. & Pardey, Philip G. & Rao, Xudong, 2013. "Returns to Food and Agricultural R&D Investments Worldwide, 1958-2011," Briefs 159649, University of Minnesota, International Science and Technology Practice and Policy.
    2. J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, vol. 66, pages 329-329.
    3. Hurley, Terrance M. & Pardey, Philip G. & Rao, Xudong & Andrade, Robert S., 2016. "Returns to Food and Agricultural R&D Investments Worldwide, 1958-2015," Briefs 249356, University of Minnesota, International Science and Technology Practice and Policy.
    4. Terrance M. Hurley & Xudong Rao & Philip G. Pardey, 2014. "Re-examining the Reported Rates of Return to Food and Agricultural Research and Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1492-1504.
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    Citations

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    Cited by:

    1. Davide Viaggi, 2018. "Quantifying the Impact of Scientific Research on Agriculture," EuroChoices, The Agricultural Economics Society, vol. 17(1), pages 19-24, April.
    2. Kingwell, Ross, 2018. "The Rationale for Taxpayer Support for Primary Industry Research and Innovation in Western Australia," Working Papers 274837, University of Western Australia, School of Agricultural and Resource Economics.
    3. Asadi, Hormoz & Zamanian, Gholamreza & Tash, Mohammad Nabi Shahiki & Ghorbani, Mohammad & Kamali, Mohammad Reza Jalal, 2017. "An Economic Analysis of Wheat Breeding Programs for Some Iranian Irrigated Bread Wheat Varieties," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 0(Issue 1), January.
    4. Xudong Rao & Terrance M. Hurley & Philip G. Pardey, 2020. "Recalibrating the reported returns to agricultural R&D: what if we all heeded Griliches?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), pages 977-1001, July.
    5. Rao, Xudong & Hurley, Terrance M. & Pardey, Philip G., 2020. "Recalibrating the reported returns to agricultural R&D: what if we all heeded Griliches?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), July.
    6. Andersen, Matthew A., 2019. "Knowledge productivity and the returns to agricultural research: a review," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(2), April.

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    More about this item

    Keywords

    Internal rate of Return; Benefit Cost Ratio; Net Present Value; Modified Internal rate of Return;
    All these keywords.

    JEL classification:

    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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