Incorporating Social Costs in the Returns to Agricultural Research

Abstract

As modern agricultural technologies have been adopted in developed countries, evidence has accumulated on their potential external costs, including soil erosion, surface and groundwater contamination by toxic chemicals, and human health risks. There is a growing recognition that these problems will be experienced in developing countries. For example, in the rice-producing areas of eastern and southeastern Asia where agricultural chemical use has increased, farmers have little education and training in the safe use of hazardous materials. The people live in close proximity to their fields, utilize water that runs off the fields, and consume fish and animals whose habitat includes the rice paddies. Much research by economists has been devoted to the measurement of the social benefits of agricultural research through the adoption of agricultural technology. Yet, little systematic effort is directed at the measurement of social costs caused by environmental damage and human health risk. Few, if any, of the numerous studies of the returns to agricultural research have incorporated social costs in their calculations (e.g., Ruttan). There are several reasons it may be important to measure these social costs (see Batie for a general discussion). Such knowledge could help research administrators allocate research funds toward socially efficient uses, for example, as in the choice between research on pest resistant varieties which could substitute for pesticides, and research on pesticide tolerance which could encourage pesticide use. Knowledge of the social costs of pesticides would be useful in setting research priorities and could also change public funding priorities between research and other uses of funds. Because the measurement of social costs is controversial, such research must not presume the existence of large social costs and engage in a witch hunt to find them. Rather, the goal should be to develop a methodology that will put both social benefits and costs on an equal footing in the economic evaluation of agricultural technology. We begin with the premise that the existing welfare economics methods for valuing nonmarket goods can be readily adapted to the valuation of externalities such as agricultural pollution. But before these valuations can be made, the physical relationships between agricultural production activities and the natural environment and human health must be understood and quantified. Although existing studies provide a foundation of data and methodology, the basic science needed for externality measurement often has not been developed. Research in the various disciplines typically generates data intended to satisfy a particular research agenda. A cross-disciplinary effort is needed to generate the data required for policy analysis. Because economics provides a framework to integrate these data for policy analysis, economists must play a central role in the organization and interpretation of the physical, biological, health, and social science research that is needed to quantify and value the social costs of agricultural technologies. Our goal in this paper is to initiate efforts toward incorporating social costs in measures of the returns to agricultural research. If reliable estimates of social costs are available, it is straightforward to adjust existing estimates of returns to research. Such ex post evaluations would be a useful starting point for incorporating social costs in ex ante evaluations. In the remainder of this paper, we outline a general evaluation framework and discuss issues in integrating disciplinary research for measurement and valuation of externalities. We focus on quantifying pollution externalities and valuing health effects, where existSusan M. Capalbo and John M. Antle are an assistant and an associate professor, respectively, Department of Agricultural Economics and Economics, Montana State University. The authors wish to acknowledge financial support of the Rockefeller Foundation and Resources for the Future.