Zvi Griliches’ seminal analysis of hybrid corn spawned a large literature seeking to quantify and demonstrate the value of agricultural research and development (R&D) investments. The most important metric for quantifying the rate of return to R&D emerging from this literature is the internal rate of return (IRR), even though Griliches was sceptical of its usefulness as a metric in this context. An alternative metric, also reported by Griliches but not as commonly used in the subsequent returns-to-research literature, is the benefit–cost ratio (BCR). We assess how the implications of the returns to agricultural R&D literature may have differed if the BCR had become the standard rather than the IRR. We reveal that the IRR and BCR produce substantially different rankings of agricultural R&D projects, differences that persist even under various commodity and geographical aggregations of the BCR and IRR estimates. The median across 2,627 reported IRRs is 37.5 per cent per year. Using data gleaned from 492 research evaluation studies, we developed and deployed a methodology to impute 2,126 BCRs (median of 5.4) and modified internal rates of returns (MIRRs, median of 16.4 per cent per year) assuming a uniform 10 per cent per year discount rate and a 30 year research timeline.
|Original language||English (US)|
|Number of pages||25|
|Journal||Australian Journal of Agricultural and Resource Economics|
|State||Published - Jul 1 2020|
Bibliographical noteFunding Information:
All the authors are affiliated with the University of Minnesota’s International Science and Technology Practice and Policy (InSTePP) centre. Rao is also a Faculty Fellow at the Sheila and Robert Challey Institute for Global Innovation and Growth at North Dakota State University. They thank Connie Chan‐Kang, Michelle Hallaway, Louise Letnes and Robert Andrade for their excellent research assistance. This paper was prepared with support from the CGIAR’s Standing Panel on Impact Assessment (SPIA), with additional support from the University of Minnesota and the Minnesota Agricultural Experiment Station (MIN‐14‐061 and MIN‐14‐134).
© 2020 Australasian Agricultural and Resource Economics Society Inc.
- benefit–cost ratio
- internal rate of return
- modified internal rate of return
- research and development