ECONOMIC EFFECTS OF RESEARCH INTO TRADED GOODS: THE CASE OF AUSTRALIAN WOOL

The final incidence of benefits and costs of wool industry research and development (R&D) undertaken in Australia depends greatly on the nature of the R&D and the way it is funded. Using preferred parameter values, the Australian share of benefits from farm‐level R&D is 58 per cent (falling to 40 per cent if there is 50 per cent adoption of the new technology by producers overseas); the Australian shares of benefits from wool‐processing R&D ere 24 per cent (topmaking) and 27 per cent (textile‐processing). Under current funding arrangements, an Australian wool tax provides about one‐eighth of total R&D funds, a matching government grant provides another one‐eighth, and other public sector funds make up the remaining three‐quarters. Under these arrangements, the final incidence of the costs is 95 per cent on Australians (mostly taxpayers at large), and the wool industry bears only 12.5 per cent of the costs of its R&D. One implication is that a wool tax alone is a more equitable and efficient means of financing wool‐industry R&D than the current arrangements.