Premium
The Calculation of Returns to Research in Distorted Markets
Author(s) -
Oehmke James F.
Publication year - 1988
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.1988.tb00060.x
Subject(s) - normative , economics , government (linguistics) , economic interventionism , psychological intervention , rate of return , intervention (counseling) , empirical research , public economics , econometrics , financial economics , finance , psychology , statistics , political science , mathematics , philosophy , linguistics , psychiatry , politics , law
Most of the empirical literature calculating rates of return to publicly sponsored research assumes that research is the only relevant government intervention. For most countries this assumption is untenable. This paper shows that improperly measuring government induced market distortions can severely bias research rate of return calculations. If the interaction between successful research and other government interventions increases the cost of the other interventions, then neglecting market distortions unambigously increases the calculated rate of return. Three examples of government induced distortions show that the magnitude of the upward bias in calculated rates of return can be extremely large ‐ in some cases more than 100 percentage points. A normative implication is that governments should account for interactions between research and price interventions when determining research support levels. A positive implication is that existing government research funding patterns are more readily explainable as reasonable behavior by a government that accounts for these interactions.