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Re‐Examining the Reported Rates of Return to Food and Agricultural Research and Development: Comment
Author(s) -
Oehmke James F.
Publication year - 2017
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aaw080
Subject(s) - internal rate of return , rate of return , modified internal rate of return , time weighted return , rate of return on a portfolio , economics , agriculture , investment performance , return of capital , context (archaeology) , investment (military) , return on investment , econometrics , microeconomics , financial economics , finance , portfolio , modern portfolio theory , political science , law , ecology , paleontology , production (economics) , politics , biology
Abstract Hurley, Rao, and Pardey (2014) argue to replace the internal rate of return with the modified internal rate of return for the evaluation of public research investment. The crux of their argument is that the internal rate of return “assumes intermediate cash flows can be reinvested (or borrowed) at same return as the initial investment, which is generally not correct or reasonable,” (page 1492). This article first demonstrates that reinvestment decisions are embodied in the project specification, and that the internal rate of return makes no inherent reinvestment assumption. The article then clarifies the algebraic properties of the marginal internal rate of return and the reinvestment implications of the internal rate of return and modified internal rate of return within the context of public agricultural research evaluation.