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Abstract

Optimal investment rules are developed for a producer agency investing in domestic market generic advertising, export market promotion, and cost of production reducing research. Analytical results show fundamental difference in optimal investment rules when the producer group is assumed to maximise either producers' surplus or social surplus. Incorporating a constraint limiting total expenditure on the three activities substantially alters the structure of the optimal investment rules. Results highlight the importance of accounting for the financing mechanism when modelling optimal producer investment. Simulation of the optimal intensities suggests the proposed budget of the Canadian Beef Cattle Research Market Development and Promotion Agency under-estimates the optimal level of investment.

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