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Abstract
Agricultural research, as with many other governmental
services, can be performed efficiently
at the state level but produces benefits that
accrue to a broader area than just the originating
state or region. Results from basic research, for
example, would be unrestricted by geographic
boundaries. Even applied research which is designed
to solve specific problems encountered in
a particular state may result in spi1lovers--geographically
external benefits--to other areas.
For example, some research results can readily be
applied over wide geographic areas while other
results need only additional adaptive research
before they are suitable for other areas.
The idea that the benefits of agricultural research
are not realized solely by the state or
region providing the research expenditures is not
a new one. Several researchers have analyzed the
interregional diffusion of a particular technology
(Peterson and Hayami, 1977, pp. 524-526). In
the study of hybrid corn diffusion, Griliches
(1957) found that differences among regions in
adoption rates were dependent on such factors as
the size and density of commodity production and
profitability of the new technology. Despite the
widespread concern over the diffusion of a particular
technology, the external benefits of agricultural
research have not received much attention
from economists working in the general area of
research evaluation and planning.
Attempts at measuring the contribution of agricultural
research to agricultural production have
often utilized a production function for a commodity
or agricultural sector as a whole in such a
manner that research was included as a separate
variable (Peterson and Hayami, 1977, pp. 520-521).
The majority of studies which have included
research as a separate variable in a production
function have been aimed at the national level
rather than the regional or state levels.
Griliches' (1964) work was one of the first publications
in the area and Evenson's (1967) work
was really important because it revealed the
nature of the lag between the research input and
increased output. The production function
approach provides an estimate of the marginal
product of agricultural research which is particularly
useful in guiding decisions about allocation
of resources to agricultural research.
Studies directed at the state or regional level
confront a major problem not encountered in a
national analysis: interregional spillovers of
the benefits from agricultural research results.
This problem has been termed pervasiveness, indicating
the tendency for research results generated
in one region to be incorporated into farm production
functions in other regions (Evenson, 1971,
p. 173). Latimer and Paar1berg (1965) and Evenson
(1971) recognized the pervasiveness problem.
Latimer and Paarlberg were unable to find a statistically
significant relationship between research
expenditures within the state and agricultural
output. They attributed these findings to
the pervasive nature of agricultural research results
(Latimer and Paarlberg, p. 239). Evenson
included a variable which measured the intensity
of commodity research in an attempt to control
for the pervasiveness of research (1971, p. 177).
If research results were completely pervasive,
Evenson argued, this variable would dominate the
state research variable. The variable was statistically
significant indicating that the interregional
transfer of agricultural research results
should be taken into account in cross-sectional
analyses.
The existence of spillover benefits has a
bearing on the allocation of research funds both
within and between states. One important problem
is to determine the appropriate balance between
federal and state government in financing agricultural
research. More specifically, what
portion of the research expenditures should be
financed by the federal government? The federal
government initially served as a catalyst
in developing the institutional framework to
conduct agricultural research. The Morrill Land
Grant College Act of 1862 and the Hatch Agricultural
Experiment Station Act of 1887 reflect the
emergence of a dual federal-state approach to
agricultural research (Peterson and Fitzharris,
1977, pp. 72-73). Under these acts, each state
received funds for a college of agricultural and
mechanical arts and for an agricultural experiment
station. This institutional framework is
still a dominant force in agricultural research.
Federal funds are allocated by a formula which
is based largely on a state's rural and farm
population (Peterson and Hayami, 1977, p. 522).
Assuming that this system of finance was appropriate
when it was first devised, is it still
equitable after almost a century?
This paper deals with the effects of spillovers
of agricultural research benefits on the
financing of research by federal and state
governments. It considers conceptual problems
of financing government services which produce
spillovers and proposes a model to align a
region's investment in agricultural research with
social benefits by compensating for spillovers
with funds from the federal government. Interregional
spillovers of the benefits from agricultural
research results are empirically measured
in order to determine the appropriate balance
between federal and state funding of agricultural
research.