Levy-funded research choices by producers and society
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.
Volume (Year): 48 (2004)
Issue (Month): 1 (March)
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- Xueyan Zhao, 2003.
"Who bears the burden and who receives the gain?-The case of GWRDC R&D investments in the Australian grape and wine industry,"
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- 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.
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- Moschini, GianCarlo & Lapan, Harvey E., 1999. "Intellectual Property Rights and the Welfare Effects of Agricultural R&D," Staff General Research Papers Archive 1735, Iowa State University, Department of Economics.
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- 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.
- 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. Full references (including those not matched with items on IDEAS)
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