Returns to Agricultural Research and Extension Programs: An Ex-Ante Approach

Agricultural research in the United States has evolved into a decentralized federal/state system. The state agriculture experiment stations have responded with considerable flexibility to changing circumstances and have developed locally appropriate technologies (Peterson and Fitzharris 1975). The contribution of research to productivity growth in agriculture is well documented. Griliches showed a 700% annual rate of return to investment in hybrid corn research and a return of 360% in hybrid sorghum. Peterson (1967) reported that the annual rate of return to investment in poultry research was 140%. The internal rate of return to investment in cotton research in Brazil was reported to be 90% (Ayer and Schuh). Barletta estimated an internal rate of return to wheat research in Mexico of 75%. Akino and Hayami estimated a 75% rate of return to rice-breeding research in Japan. Internal rates of return to investment in experiment station research in the United States by commodity range from 36% for cash grains research to 46% for livestock research (Bredahl and Peterson). Aggregate evaluation of agricultural research and extension shows that the value of inputs saved in 1950 ($9.6 billion) far exceeded the cost of research and extension ($7 billion) for the entire 1910-50 period (Schultz). Peterson's 1971 analysis shows that the cost of research and extension for the 1910-67 period ($9.4 billion) is about one-third of the value of inputs saved in 1967 ($25.9 billion). In general, internal rates of return to investment in all agricultural research is estimated to range between 35% and 171% (Griliches). Previous evaluation studies used an ex-post approach and are criticized on both methodological and empirical grounds. Implementation and maintenance costs of research are omitted and thus the resulting estimates of internal rates of return are biased upward. Ex-post evaluations estimate the benefits of past research and so have little impact on decisions relative to resource allocation between current and future projects. Previous evaluation studies have failed to estimate explicitly the impact of extension on the overall research effectiveness.