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Abstract
The growth in agricultural R&D investments around the world has slowed considerably in the past 20–30 years, even though most experts agree that there is substantial underinvestment in agricul-tural R&D. Introducing a simple economic model of the ex ante selection of R&D projects allows us to make a more insightful interpretation of the available ex post rate-of-return evidence. Two sets of factors can be identified that determine the level of investment in agricultural R&D:(1) the ex ante choice set of R&D projects for a given domain and time and (2) the extent to which the assumptions of full information and selection rationality apply. There are important differences in innovation opportunities between industries, between coun-tries, and through time. Apart from purely technological opportunities, factors that also play a role are the size and structure of the market, the rate and speed of technology adoption, risk and uncer-tainty, and R&D effectiveness and efficiency. If improved, each of these factors could either increase R&D benefits or reduce R&D costs, creating a larger choice set of profitable R&D projects. By assuming less than full information and selection rationality, various explanations for under-investment in agricultural R&D can be tested. The model also allows us to gain insight into the polit-ical economy aspects of R&D project selection by examining situations in which two distinctive R&D choice sets are competing with each other for funding, or in which projects are selected according to the different perspectives of social planners, farmers, or consumers.