Files
Abstract
The economic surplus approach is used to estimate the returns to federal investments in
dairy cattle research in Canada. A national supply function is estimated using time series
data. Lagged research expenditures are included as explanatory variables in the model,
facilitating the calculation of marginal as well as average benefits from research. Simulation
analysis is used to study the effects of product market distortions associated with Canadian
dairy policy as well as of the marginal excess burden on the rates of return to research and
on the distribution of research benefits. Returns were found to be high at the margin.
Distortions in the product market had a small effect on the overall returns to dairy cattle
research but had a large impact on the distribution of research benefits. Rate of return
estimates were found to be indicative of underinvestment even when the marginal excess
burden was taken into account.