Agricultural Economics Department


Date of this Version



Published in Journal of Productivity Analysis 37 (2012), pp. 95–113; doi: 10.1007/s11123-011-0252-0


Copyright © Springer Science+Business Media. Used by permission.


The internal rate of return to public investment in agricultural R&D is estimated for each of the continental US states. Theoretically, our contribution provides a way of obtaining the returns to a local public good using Rothbart’s concept of virtual prices. Empirically, a stochastic cost function that includes own knowledge capital stock as well as spillover capital stock variables is estimated. Stochastic spatial dependency among states generated by knowledge spillovers is used to define the “appropriate” jurisdictions. We estimate an average own-state rate of 17% and a social rate of 29% that compare well to the 9 and 12% average returns of the S&P500 and NASDAQ composite indexes during the same period.