The producers captured 24% and consumers captured 76% of total benefits to society
resulting from investment in cotton research. The proportion of benefits captured by producers
resulting from investment in peanut research was 17%, leaving 83% to be.captured by
consumers. These figures for the distribution of benefits provide strong empirical evidence in
favor of Cochrane’s treadmill hypothesis.
Calculating Summary Economic Effects Using Internal Rate of Return (IRR)
The annual social benefits represent the benefits to society, but do not consider the social
costs. Annual investment in research can be combined with the results in Tables 4 and 5 to
calculate an internal rate of return to compare the costs and benefits of the investments. The
research expenditure variable used to directly estimate the supply equations was lagged seven
years using a Pascal lag and deflated in 1984 dollars. Two changes were made to the research
variable in order to utilize it in equation (12) for the IRR calculations. The actual expenditures
from 1956 through 1995 were used in the IRR calculations instead of the Pascal lagged version
(1963-1995). The extra seven years from 1956 to 1962 were necessary to establish a stream of
initial investment costs for the IRR to be calculated. This variable was also deflated to represent
1982 (rather than 1984) dollars to match the base year used in measuring the social benefits.
This way expenditures and benefits were in real dollars in the IRR calculations and the internal
rate of return is in real terms, meaning that it is separated from any effects of inflation.
The internal rates of return on cotton and peanuts are 53.58% and 23.87%, respectively. The
results convey that society has benefited considerably from public investment in cotton and
peanut research. The internal rate of return for investment in cotton research indicates that every
dollar invested yielded, on average, $1.54 in annual social benefits for the period 1963-1995.
17
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