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

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  • James F. Oehmke

Abstract

Hurley, Rao, and Pardey (2014) argue to replace the internal rate of return with the modified internal rate of return for the evaluation of public research investment. The crux of their argument is that the internal rate of return “assumes intermediate cash flows can be reinvested (or borrowed) at same return as the initial investment, which is generally not correct or reasonable,” (page 1492). This article first demonstrates that reinvestment decisions are embodied in the project specification, and that the internal rate of return makes no inherent reinvestment assumption. The article then clarifies the algebraic properties of the marginal internal rate of return and the reinvestment implications of the internal rate of return and modified internal rate of return within the context of public agricultural research evaluation.

Suggested Citation

  • James F. Oehmke, 2017. "Re-Examining the Reported Rates of Return to Food and Agricultural Research and Development: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 818-826.
    • Handle: RePEc:oup:ajagec:v:99:y:2017:i:3:p:818-826.
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    File URL: http://hdl.handle.net/10.1093/ajae/aaw080
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    Citations

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    Cited by:

    1. 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.
    2. Norbert L. W. Wilson & Lurleen M. Walters & Tara Wade & Kenesha Reynolds, 2024. "The distribution of competitive research grants from the National Institute for Food and Agriculture: A comparison of 1862 land grant universities, 1890 land grant universities, and other institutions," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(1), pages 76-94, March.
    3. 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.
    4. 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.

    More about this item

    Keywords

    Agricultural research; benefit-cost ratio; internal rate of return; modified internal rate of return; rates of return on R&D;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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

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