Government involvement in agricultural research and development (R&D) is justified if the benefits exceed the costs. Does the private sector neglect socially profitable investments? So-called market failures in R&D can result if inventors are unable to fully appropriate the returns to their inventions—if “free-riders” can adopt new technology and benefit from it without having to contribute to the costs of research. In agriculture, in particular, it seems likely that, absent government intervention, the private sector will invest too little in certain types of R&D, and there is a strong in-principle case for government to intervene either to improve private incentives or, more directly, to fund or undertake research.
In the United States, both state and federal governments are extensively involved in agricultural R&D. Perhaps the most obvious and arguably the main form of involvement is the government production of agricultural science—in government laboratories or in public Universities—using general government revenues. This intervention is justified both in principle and by the evidence that the rates of return to public agricultural research have been very high, even with very extensive government intervention to correct the private-sector underinvestment in agricultural R&D (e.g., see Alston et al., 2000). This suggests that the government intervention to date has been inadequate and that the United States could have profitably spent much more on agricultural R&D. These observations apply to differing extents to different elements of U.S. agricultural R&D in aggregate in terms of fields of science, locations of production, or commodity orientation of research.
Alston, J.M., Andersen, M.A., James, J.S. & Pardey, P.G. Persistence pays: U.S. agricultural productivity growth and the benefits from public R&D spending Davis and St Paul University of California, Davis and University of Minnesota 2008 (in preparation).
Alston, J.M., Chan-Kang, C., Marra, M.C., Pardey, P.G. & Wyatt, T.J. 2000 A meta-analysis of the rates of return to agricultural R&D: Ex pede herculem. IFPRI Research Report No. 113 International Food Policy Research Institute Washington, DC
Alston, J.M., Norton, G.W. & Pardey, P.G. 1995 Science under scarcity: Principles and practice for agricultural research evaluation and priority setting Ithaca Cornell University Press (republished in soft cover by CAB International, Wallingford, UK, 1998).
Alston, J.M. & Pardey, P.G. 1996 Making science pay: Economics of agricultural R&D policy American Enterprise Institute for Public Policy Washington, DC
Alston, J.M., Sumner, D.A. & Vosti, S.A. 2006 Are agricultural policies making us fat? Likely links between agricultural policies and human nutrition and obesity, and their policy implications Review of Agricultural Economics 28 313 322
Carman, H.F. & Alston, J.M. 2005 California's mandated commodity programs Kaiser H., Alston J.M., Crespi J. & Sexton R.J. The economics of commodity promotion programs: Lessons from California Peter Lang Publishing New York, NY
Cash, S.B., Sunding, D. & Zilberman, D. 2005 Fat taxes and thin subsidies: Prices, diet and health outcomes Acta Agriculturae Scandinavica Section C 2 167 174
Gray, R. & Malla, S. 2001 The evaluation of the economic and external health benefits from canola research Alston J.M., Pardey P.G. & Taylor M.J. Agricultural science policy: Changing global agendas Johns Hopkins University Press Baltimore, MD
Kalaitzandonakes, N., Alston, J.M. & Bradford, K.J. 2006 Compliance costs for regulatory approval of new biotech crops Just R.E., Alston J.M. & Zilberman D. Regulating agricultural biotechnology: Economics and policy Springer-Verlag Publishers New York
Pardey, P.G. & Andersen, M.A. 2008 A long-run price index and the real cost of U.S. agricultural research University of Minnesota St. Paul, MN