Marginal Internal Rate Of Return Research Articles

The Economic Benefits of Supporting Private Social Enterprise at the Nexus of Water and Agriculture: A Social Rate of Return Analysis of the Securing Water for Food Grand Challenge for Development

This article attempts to evaluate the comparative socioeconomic benefits of funding performance-based private sector social enterprises and posits that the social rate of return of such investments is significant and exceeds expectations for similar investment portfolios. Using the case study of the Securing Water for Food Grand Challenge for Development, we perform a social rate of return analysis on 16 water conservation technologies (WCTs) in 10 nations. Through using an extensive benefit cost ratio, we obtain the Marginal Internal Rate of Return whereby the discounted value of future benefits is equal to the reinvestment cost of capital for the SWFF portfolio. This allows the impact of SWFF to be comparable to other investments and serve as a benchmark. The resulting social rate of return metrics exceed the conservative expectations of impact investment funds as well as comparable foreign aid investments. The reasons behind this high rate of social impact are further explored and recommendations are provided accordingly for an alternative performance-based investment model of foreign aid disbursement that prioritizes scalable small and medium-sized social agribusiness enterprises in developing nations.

Does research and development (R&D) investment lead to economic growth? Evidence from the South African peach and nectarine industry

Agricultural research programmes in Africa have experienced waning state financial allocations. Efforts to change these funding trends have been fettered by the limited evidence of research investment benefits and the long lags associated with these returns. In a bid to provide such information, this article seeks to calculate the benefits of investments in the Agricultural Research Council’s peach and nectarine research programme – one of Africa’s successful and oldest research programmes. It uses the supply response function to model South Africa’s peach and nectarine industry and estimates the effect of deciduous fruit prices, production costs, research investment and weather on production. A lag distribution of research and development (R&D) investment is estimated using the polynomial distribution function and the derived elasticities are used to calculate the marginal internal rate of return. The study’s results reveal that investment in the peach and nectarine programme is associated with a marginal internal rate of return of 55.9%. This means that every R100 invested yields a R55.9 increase in value in the peach and nectarine industry. In light of these findings, it is concluded that R&D investment is worthwhile and recommends that the funding allocated to this programme be increased.

Re‐Examining the Reported Rates of Return to Food and Agricultural Research and Development: Comment

AbstractHurley, Rao, and Pardey (2014) argue to replace the internal rate of return with the modified internal rate of return for the evaluation of public research investment. The crux of their argument is that the internal rate of return “assumes intermediate cash flows can be reinvested (or borrowed) at same return as the initial investment, which is generally not correct or reasonable,” (page 1492). This article first demonstrates that reinvestment decisions are embodied in the project specification, and that the internal rate of return makes no inherent reinvestment assumption. The article then clarifies the algebraic properties of the marginal internal rate of return and the reinvestment implications of the internal rate of return and modified internal rate of return within the context of public agricultural research evaluation.

Estimating the return to investments in education: how useful is the standard Mincer equation?

We examine how well the schooling coefficient in standard Mincer equations, estimated on Swedish data for 1968, 1981 and 1991, approximates the marginal internal rate of return to education. We find three cases where inference from the estimated schooling coefficient is misleading. First, the decline in return to schooling from 1968 to 1981 is mainly concentrated to college education, whereas the return to high school education is stable. Second, the rate of return is sensitive to the assumption made about the length of working life, or the retirement decision. Third, both the schooling coefficient and the internal rate of return give misleading information about the value of adult education. By comparing the present value of lifetime earnings between youth and adult education, we find large differences in favor of youth education, even though the schooling coefficient and the internal rate of return are the same.

The Returns to Agricultural Research in Maine: The Case of a Small Northeastern Experiment Station

Estimates of the marginal internal rate of return to expenditures for research by the Maine Agricultural Experiment Station are presented. Estimates are performed using ridge regression under an array of specifications, including alternative functional forms, lag structures, costs of public funds, and variable specifications. The results are consistent with many previous results that imply an underinvestment in agricultural research.

Marginal Productivity of Public Research in the Softwood Plywood Industry: A Dual Approach

Abstract The production function approach commonly used in agricultural studies is modified to estimate returns from publicly funded forestry research. The method indirectly estimates production function coefficients using a simultaneous, constrained supply and demand system. From these estimates the value of the marginal product (VMP) of public research involving softwood plywood is used to calculate a marginal internal rate of return (MIRR) on publicly funded research. Whereas similar studies in the agricultural literature use a short-run VMP based solely on the initial impact of R&D, we develop a long-run VMP, which incorporates research impacts over time. A short-run VMP is also defined, however, and compared to the results reported in the agricultural literature. Estimates of the short-run VMP for softwood plywood are similar to other aggregate research cases, such as corn and poultry. The estimated long-run VMP, however, is large; the most conservative assumptions yield an estimated VMP of public research in softwood plywood of $33.11 in 1967 dollars. The MIRR is also large with a lower estimate of 236%. For. Sci. 33(4):872-888.

The Returns to Investment in Agricultural Research in Finland 1950—1984

This study attempts to estimate the value marginal product and the marginal internal rate of return for agricultural research in Finland. Based on production function analysis, different Cobb-Douglas and linear models are specified and estimated. A variable for the research input is measured through the flow of public expenditures for research and university-level education in 1950—1984. In addition, a stock of research capital consisting of funds accumulated since 1920 is constructed and included in the models. The estimates of elasticity with respect to public research are used to compute rates of return. State expenditures for extension agencies are also taken into account on the cost side. It is concluded that the stock of research capital estimates are more believable than the flow estimates, because of difficulties in identifying an appropriate lag. Based on the stock estimates, the value marginal product for public research during the period studied seems to have been 1.83—1.91. The conclusion implies that additional public investment in agricultural research would have annually returned by 183—191 % over the inflation rate. The marginal internal rate of return for public research is calculated to have been 20—62 % depending on the length of the lag (4—10 years).

A Nonresidual Estimation of Welfare Gains from Research: The Case of Public R&D in a Forest Product Industry

ment.' Since the increases in economic welfare measured by this method are presumed to be generated by the shifting of the supply curve due to a new technology, this type of study will be referred to as the supply function or SF approach. In practice, this approach has been applied to particular innovations in particular industries in a manner: Any observable outward shift of the supply curve is attributed to the particular innovation so that the benefit of the R&D is calculated residually in a manner to be made clear later. The other type of approach involves the estimation of a production function where research effort or expenditures are used in the econometric estimation so that the effects of R&D are measured directly. For this reason this method may be called a nonresidual approach. This approach allows the researcher to estimate the marginal productivity of research and the value of the marginal product of research investment or the marginal internal rate of return on research investment.' This approach is referred to as the production function or PF approach. Economists have been critical of the residual SF approach. Griliches [9, 92-3] faults the usual SF approach for its use of historical case studies of particular innovations since they tend to

A COMPARISON OF PROCEDURES FOR ESTIMATING RETURNS TO RESEARCH USING PRODUCTION FUNCTIONS

The production function approach has been one of the two main ex‐post procedures used to estimate the rate of return to agricultural research. A critical part of estimating the marginal internal rate of return (MIRR) is the procedure adopted to spread the benefits of research through time. Past studies using this approach have given only brief consideration to this computational procedure. The objective in this study was to review the different computational procedures used and, then, using cross‐section production function estimates for U.S. agriculture, determine whether the MIRR estimates are sensitive to the computational procedure used. The results from this comparison indicate a large range in the estimates. The implication, then, is that careful consideration should be given to the choice of computational procedure, both when undertaking such a study and when comparing the results of different studies.

Economic analysis of alternative envelope designs for new residences in the United States

An economic evaluation is conducted for selected energy-conservation investments in the envelope design of new single-family housing in the U.S. Alternative investment levels in the four major components of the building envelope are evaluated: 1. (1) attic 2. (2) walls 3. (3) floor, and 4. (4) windows. The analysis is conducted for five cities of widely diverse climate conditions and for the major forms of energy used for heating and cooling in the U.S. For each investment level, the internal rate of return (IRR) is calculated on an incremental basis, that is, in comparison with the next lowest level of investment for that component. This marginal IRR is used to rank alternative levels of investment for all four components so that economically optimal envelope designs can be selected for each city and energy type. Two points of view are considered in the selection of optimal designs: that of an individual homebuyer and that of a public policy planner.

Relation between the Pattern of Use and the Future Output from a Flow Resource

Pattern of use influence on future rates of flow was quantified for heavily grazed Great Plains grassland using two models—one treating pattern of use influence on rates of flow without interaction with exogenous variables and the other treating pattern of use influence with interaction. In the first model, heavy grazing decreased the future levels of the forage-precipitation response function. While in the second model, both the level and the shape of this response function were changed. An intermediate grazing level was simulated and alternative grazing levels for a simple grassland enterprise compared. Using the first model, the intermediate level was best if the required marginal internal rate of return were less than 10.5 percent. Using the second model, heavy grazing both decreased future income levels and markedly changed the shape of the probability distribution. Continued heavy use caused the resource to become, in an economic sense, a different resource.

The Magnitude of the Discount Rate for Government Projects

* This paper, part of a project begun during the 1960 Ford Faculty Research Seminar at Vanderbilt University, has profited from criticism by Rendigs Fels, Director of the Seminar, and John V. Krutilla. Neither of these obliging critics nor the Ford Foundation necessarily agrees with opinions expressed in this paper; they are not responsible for the shortcomings of the final draft. 'See especially the following: 0. Eckstein, Water Resource Development (Cambridge, Mass.: Harvard University Press, 1958), pp. 94-104,; J. Hirshleifer, J. C. De Haven, J. W. Milliman, Water Supply Economics, Technology, and Policy (Chicago, Ill: University of Chicago Press, 1960), pp. 139-174; J. V. Krutilla and 0. Eckstein, Multiple Purpose River Development (Baltimore, Md.: Johns Hopkins Press, 1958), Chapter IV; R. N. McKean, Efficiency in Government Through Systems Analysis (New York: John Wiley & Sons, 1958), pp. 74-95; P. 0. Steiner, Choosing among Alternative Public Investments, American Economic Review, December 1959, pp. 893-916. 2 No attention is paid in the body of this paper to the contributions of McKean and Steiner and to the possibility of using as the rate of discount the average of rates of return on long term government obligations. For circumstances in which government budgets are subject to change, McKean favors discounting at the market rate of interest (McKean, op. cit., pp. 76-81), but he fails to say just what market rate is to be employed. If budgets are fixed, McKean thinks discounting should be at the marginal internal rate of return for government projects. (Ibid., pp. 81-88). This suggestion has little use because budgets in practice are fixed only in the short run, and, even if they were fixed in the long run, the issue of their proper size would still demand attention. See Hirshleifer, De Haven, and the issues with which this paper is concerned and because he is highly specific in setting forth his general solution, point-of-departure use is made of his work.3