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Article Excerpt
Abstract
The objective of this paper is to present econometric evidence of the effects of economic incentives, public policies, and institutions on national aggregate private agricultural R & D investments. The main hypothesis we will test in this paper is whether agricultural R & D spillovers represent a disincentive for national private R & D. More specifically, we will test if the spillovers function, which is a determinant of private R & D, follows a quadratic form and if private R & D is determined by the role of incentives and institutions. (JEL Q10, O10)
Introduction
Private sector firms undertake agricultural R & D for the purpose of making a profit. Profitability is heavily conditioned by a country's institutions, which provide the framework for determining appropriability of discoveries, such as contract enforcement or patent property right protection. EU countries are heterogeneous in these attributes and difficulties in intercountry technology transfers might occur [Pray and Fuglie, 2000; Johnson and Evenson, 1999].
The existence of spillovers is directly related to the quality of property rights. Spillovers knowledge is a combination of a nonrivalrous and nonexcludable good [Griliches, 1992; Cornes and Sandler, 1986]. If we accept the existence of public good characteristics in agricultural R & D, then an improvement in the quality of property rights that makes it more difficult to take advantage of the existence of international spillovers should induce an increase in R & D expenditure. The reason is that nonrivalness of new technology will be reduced, combined with the inability of agricultural producers to appropriate fully the returns to their research investments. It is technically difficult to exclude others from gaining the benefit of knowledge mainly because of institutional arrangements, which we will consider to determine the final amount of private R & D in the European agriculture.
Agricultural research in Europe has been shown to be a main determinant of agricultural production in Europe [Schimmelpfennig and Thirtle, 1994]. Agricultural research is shared by public and private sector, but significant differences exist among European countries [Alfranca and Huffman, 2001]. Given that these countries are also under CAP reform, the formation of the EMU and facing the fast proliferation of scientific and technological changes in biotechnology and in agronomic sciences, the role of public and private R & D funding in Europe is under review.
As a consequence of these changes, private R & D in agriculture is becoming increasingly important in the different European countries, although in some countries, such as Spain or Germany, the private sector R & D funding remains comparatively small (Table 1). One of the main explanations for this fact is that for research to be potentially profitable for the private sector, innovations must be of a type that can be protected by patents, breeders' rights or trade secrets, and even in this case, it must yield a rate of return high enough for the private sector to be interested in undertaking the R & D investment [Huffman and Just, 1999]. European countries are agriculturally diverse, so that much of applied agricultural research has local benefits and can be easily considered to be such as an impure public good. Private R & D will be optimally produced only if property rights on innovation can be identified and protected. In this case, knowledge is an impure public good, where the benefits of research conducted in one location become imperfectly available to other locations or interregional spillover effects are partial [Evenson, 1989; Huffman and McCunn, 1999].
The cost of private R & D is affected by opportunities to borrow information on new discoveries, which create new opportunities, from the public sector and other private companies [David et al., 2000]. The public sector is usually considered to be a source of pure public good discoveries, e.g., in basic and pre-technology science [Huffman and Evenson, 1993], and strong linkages to productive public agricultural research can greatly reduce the cost of private R & D [Narin et al., 1997; Echeverria and Elliott, 2000; Huffman and Just, 1994]. However, the public sector sometimes engages in applied research and technology development that is directly competitive with the private sector. These activities may reduce the expected profitability of private R & D and cause a reduction in private agricultural R & D. Nevertheless, the paper by Brod and Shivakumar [1997] shows that when spillovers are large, collaboration in R & D yields greater innovation, output and consumers' surplus than uncoordinated R & D.
The objective of this paper is to present econometric evidence of the effects of economic incentives, public policies, and institutions on national aggregate private agricultural R & D investments. The main hypothesis we will test in this paper is whether agricultural R & D spillovers represent a disincentive for national private R & D. More specifically, we will test if the spillovers function, which is a determinant of private R & D, follows a quadratic form and if private R & D is determined by the role of incentives and institutions.
A model is proposed and fitted to annual data for nine European Union countries, 1984-95. We find strong impacts of incentives, public policies and institutions on private aggregate agricultural R & D investment, and interactions between public policies and institutions.
The paper is organized as follows. The next section briefly discusses some relevant features on R & D spillovers. The following section displays our theoretical background on agricultural R & D spillovers and the hypotheses to be tested. Then, the paper discusses the data, econometric tests and results. Finally, we present the conclusions.
Spillovers and R & D
Spillovers are understood as ideas borrowed by research teams of a firm or industry from the research results from another firm or industry [Griliches, 1992]. The benefits from R & D spillovers can be both direct and indirect [Coe and Helpman, 1995; Engelbrecht, 1997; Lichtenberg and Van...
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