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The growth in agricultural productivity and the significance of science and technology in contributing to this growth has been well documented by Bredahl, Cline, Evenson (1967), Griliches (1964), and Peterson. The results of these studies generally indicate that over the past several decades, investment in agricultural research has paid off with relatively high rates of return. Most of this previous work, however, has been directed at estimating returns to aggregate agricultural research in an ex post sense at the national level and does not address the question of potential future returns to research at a state or regional level (Norton). Thus, a particular need exists to develop a methodology for evaluating the potential returns to specific types of agricultural research at a subnational level.
The allocation of agricultural research funds in the United States is determined in large part by political decisionmakers and research administrators at the state level. Although aggregated, national-level, ex post estimates of returns to research are useful to state-level research administrators as indicators of research potential and as a means of justifying funding requests, they are not directly applicable to the larger issues involved. A state-level assessment of the effects of agricultural research should be as situation specific as possible, considering at least the geographic distribution of benefits and the division of benefits between consumers and producers. Essentially, research administrators need to know which types of agricultural research can be expected to have the highest payoffs and to whom the gains will accrue.
Answers to questions regarding the magnitude and distribution of agricultural research benefits depend on five primary factors: (1) the impact which a research finding has on production possibilities, (2) the rate and extent of adoption, (3) supply elasticities of the commodities affected, (4) price elasticities of demand for the commodities affected, and (5) agricultural policy. An analysis of potential returns to agricultural research at the state level must consider each of these factors. The purpose of this paper is to present a general conceptual framework for such analyses and also to describe how this framework is being applied in a study of potential return to research in Nebraska.