Gains to Research in the Presence of Intellectual Property Rights and Research Subsidies

Abstract

The influx of private investment into crop research, which has accompanied the establishment of intellectual property rights (IPRs) and the introduction of biotechnology, suggests high rates of return. However, the empirical analysis of the canola research sector shows a decline in the total net return to research during a period of increased investment, indicating that net marginal returns to research have been negative. The indication of immiserizing research suggests that the combined effect of IPRs and public incentives has driven the quantity of research beyond the socially optimal level. Private agricultural research funding for many open-pollinated crops has increased significantly since 1980. New biotechnologies have increased the scope and reduced the cost of genetic modification. This enhanced technology has coincided with the creation of more effective property rights that allow firms to capture the value of the products they produce. Governments have also supported private research. The result of these forces has been substantial private investment in open-pollinated crop research and, more recently, a commercialization of many privately developed crop varieties. Private research now dominates crops such as soybeans and canola that were almost entirely publicly funded three decades ago. In the theoretical portion of this study, we use an analytic model to show the relationship between research incentives and the gains from research. The market failure created by the nonexcludible nature of crop research can be addressed by the creation of intellectual property rights (IPRs) or by government subsidization of research. We show that, when used in tandem, these policies can create incentives for excessive private investment in research.