Externalities and the Returns to Agricultural Research: Discussion

Abstract

It is clear from the papers presented at this session that significant positive and negative externalities are associated with the results of agricultural research. Failure to account for the nonmarket effects of suggests the possibility of misallocation of effort, with maldistribution of its benefits and costs. The authors thus agree that we can and should consider nonmarket effects in estimating the benefits of agricultural research. All suggest avenues of economic research-on-research, which are proposed as contributions to the ongoing controversy over whether overor underinvestment exists in agriculture, and to decisions on research priority setting1 (Carlson) and research system design (Evenson). The suggested economic needs include interdisciplinary work to measure precisely risks and other externalities, and fine disaggregation of benefits and costs to investigate distributional issues. While theoretically appropriate, such requires considerable effort and expenditure. Before agricultural economists plunge into efforts that may, in and of themselves, contribute to an overinvestment in agricultural research, it is important to ask for whom and why we might go through such exercises. Let us consider who makes decisions and what factors influence the decisions that result in a particular magnitude and distribution of market and nonmarket benefits and costs. First, there is the private sector, which responds to market signals. Yet, for agriculture, market signals tend to be distorted by agricultural policies. The provision of price supports, input subsidies, or protection through quotas can have profound effects on the direction of as well as on the estimated magnitude of marl-4t benefits of such research. Ruttan has demonstrated these effects with respect to rice policy and Japanese agricultural research. In the United States, the existence of strong price and income support for production of selected commodities may explain why, as Carlson reports, pesticide tends to focus on large (and, one might add, guaranteed) markets. The fact that major commodity prices have for fifty years been maintained at high levels, determined in part by production costs, means also that output prices relative to input prices have remained high. There has been no private inducement for innovative change in the direction of agricultural production research. On the contrary, there has been consistent, policy-induced encouragement for on competitive or replacement inputs for landand labor-saving production of major commodities. This trend may explain Carlson's failure to detect a dampening effect of regulation on pesticide investment. Whether policy-induced market distortions are sufficiently strong to offset regulatory incentives for change in private direction is a relevant and timely question. Alston, Edwards, and Freebairn review the conceptual basis for expecting a strong relationship, but the question has not received empirical investigation. Empirical tests may be difficult because a consistent commodity policy has existed for so long. However, if policy is suspected as a significant force in determining the direction of research, it may pay off more for economists to study the policy explanations of trends than to try to combat strong market forces through scientific investigation of alternative technologies. The public sector, too, is influenced by market signals, distorted though they may be. In addition, the direction of public is highly susceptible to public demand. For example, there was an inundation of public funds for integrated pest management (IPM) reKatherine H. Reichelderfer is associate director of the Resources and Technology Division, Economic Research Service, U.S. Department of Agriculture.