Determinants of the Demand for State Agricultural Experiment Station Resources: A Demand-System Approach

We document the decline in traditional federal government support of the state agricultural experiment station system over the 20 years period starting in 1980 and of state government support over the 1990s. This paper presents a model of state government decisions on agricultural research expenditures. The model permits some benefits to be private in the sense that they are state specific and others to be public and spillover to other states. To capture a key aspect of agricultural research, the model includes voluntary and nonvoluntary contributions to a state government’s expenditures on agricultural research. Moreover, we argue that different types and sources of contributions to a state’s agricultural research expenditures can be expected to differ in their potential for private and public good production. The econometric model treats federal grants, federal formula funds and private contract, and a state’s own appropriates for agricultural research as separate inputs in a state government’s demand system for agricultural research. Involuntary transfers are from interstate public and within state spillins. The demand system is fitted to a panel of 48 contiguous states over 1970 to 1999. These results show that the income elasticity of demand for federal grants and private contracts is larger than one (elastic), for state funds is approximately one, and for federal formula funds is significantly less than one (inelastic). We also show that the national ranking of graduate doctorate faculty in basic biological science and capacity in the agricultural experiment station for basic biological science research increase the demand for federal grant and contract resources. The demand for state government support of SAES research is increased by a high Gourman ranking of graduate agricultural science programs.