Externalities and the Returns to Agricultural Research: Discussion

Abstract

The three papers presented this session deal with externalities that result from agricultural research and technology. Capalbo and Antle are concerned justifiably with incorporating social costs into measures of the returns to agricultural research and technology. As such, they are concerned mainly with negative externalities such as pollution and health risk from the use of agricultural chemicals. The policy issue is that the absence of an accounting for social costs, private and public actors will overinvest technologies that place stress on the environment and underinvest those that are environmentally benign. Evenson looks at a different set of externalities: the spillover effects of research and technology between regions and subregions. Evenson's focus is therefore mainly on positive externalities. The policy issue is thus the opposite of Capalbo and Antle's. If public agencies do not count positive spillovers, or private firms cannot appropriate positive spillovers, agricultural research and technology will be underprovided. Carlson does an excellent job of examining the negative and positive externalities of pest control research. Two of his points bear reemphasizing. First, while the use of a pesticide may create externalities, cancellation of that pesticide may also create externalities that need to be examined the regulatory decision. Second, he notes that IPM is basically an information technology. The public good nature of information makes it necessary for public funding of IPM research. In the remainder of my discussion I will explore that wily beast, the externality. My theme is that some externalities are less than others, that market, technological, and institutional innovations work to internalize the external effect. Others persist over time. I have two points. First, if you measure social rates of return by combining private returns with nonmarket measures of externalities, caution is needed to avoid double counting. Double counting may arise if some externalities have become internal to the decisions of private or public decision makers. Second, those externalities that persist over time should be the target of public policy. My argument is closely related to those of Demsetz and Randall. Demsetz's point is that new technologies bring new benefits and costs, some internal to existing markets and some external. The external effects will become internalized when and if the benefits from internalization exceed the costs. The costs and benefits of internalization will change as economic values change, which turn are shaped by the evolution of other new technologies and the opening of new markets. Randall argues that the terms public good, externality, and common property are confusing. He proposes another taxonomy that is familiar to any student of public finance. Goods may be rival or nonrival, exclusive or nonexclusive. Randall also adds the categories congestible and hyperexclusive, but these are not necessary for this discussion. A nonrival good is one which my consumption does not limit the consumption of anyone else. Examples include breathing clean air or enjoying a scenic view. A nonexclusive good is one that once produced cannot be excluded from nonpaying customers. Breathing clean air is a nonexclusive good, but a scenic view may not be-the view could be obstructed by a fence and admission charged. Private goods, such as bread and milk, are both rival and exclusive. Randall asserts that, in economies which maintain institutions conducive to trade and efficiency, those things called externality cannot persist inefficient quantities unless accompanied by nonexclusiveness and/or nonrivalry. Externality, by itself, is simply not persistent (p. 140). Tim T. Phipps is a fellow at the National Center for Food and Agricultural Policy, Resources for the Future, Washington DC. The author would like to acknowledge the helpful comments of Pierre Crosson.