The cost of production is an average per acre cost of producing cotton and peanuts in the
Southeast. Rainfall and research expenditures on each commodity on the area were also
exogenous variables in the model. The expected prices and average costs of production were
deflated in 1982 dollars. The public agricultural research expenditures are in constant 1984
prices, or real terms. Since research spillovers occur within similar geo-climatic regions, all the
data was averaged or aggregated to create a region-wide data set for each commodity over the 33
years from 1963 through 1995.
The economic surplus framework used to evaluate the model described above measures
the contribution of research investment to agricultural productivity by comparing two production
scenarios. First, the supply equation is estimated with research expenditures as an exogenous
variable. The second scenario measured in this framework is the fictional quantities that would
have been produced with no investment in research. The theory is that new production
technology generated from investment in the research shifts the production curve to the right and
generates welfare benefits for society (the first scenario). The economic surplus framework
measures producer and consumer surplus changes that result from comparing the two scenarios,
as the production function shifts to the right. To evaluate the performance of the investment,
these results are used in conjunction with the research investment costs to generate and internal
rate of return on the investment
The results revealed positive benefits to consumers and producers exceeded the investment
amount in each year for both commodities in the period. The total social benefits averaged about
201 million (1982) dollars annually for cotton research. Peanut research averaged about 191
million (1982) dollars resulting form research investment. The internal rates of return were 23.87
percent for cotton and 53.58 percent for peanuts, suggesting that past research investments