AN ECONOMIC EVALUATION OF COTTON AND PEANUT RESEARCH IN SOUTHEASTERN UNITED STATES

ii) To measure the social costs and returns form public research and development
funding.

iii) To assess the distribution of these benefits between producers and consumers.

LITERATURE REVIEW

In 1953, Schultz calculated the cost savings resulting from new production and technology
and compared this to costs of developing the new technology resulting in a 700 percent return on
investment. Agricultural output was determined to be 32 percent higher in 1950 compared to
what would have been if the research had not been conducted. Another early study evaluating
the effectiveness of agricultural research investigated the rate of return on research devoted to
developing hybrid corn was done by Zvi Griliches (1958). He suggested that his result of a 37
percent internal rate of return (IROR) on investment be taken as an indication that ‘research is a
good thing.’

Another hypothesis introduced in 1958 was called the “treadmill theory” which was
introduced as a result of farmers constantly having to adopt new technologies in order to enhance
productivity. The treadmill theory postulated that despite their constant adoption of new
technologies, only the initial adopters made any of the resulting profits. As more farmers adopt
the technology, any profits that may be made are eventually “worn away” as increased supply
and/or competition pushes prices down. The downward pressure on prices resulting from an
outward shift in supply makes any increase in profits impossible at such low prices. Since its
introduction, there has been substantial evidence to support this theory’s argument (Levins &
Cochrane, 1996); however this theory was never empirically tested.

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