Impact of Economic Development on Commodity and Public Research Policies in Agriculture

A political-economic explanation is provided for the existence of commodity policy and research expenditures in agriculture. Structural economic characteristics such as pre-policy endowment incomes, deadweight costs, and distributional impact of research are found to determine the levels of commodity price subsidies (taxes in developing countries) and underinvestment in research in all countries. Unequal benefits from research generate two types of interaction effects: political interaction effects , whereby commodity policy reduces research-induced inequality, resulting in more research; and economic interaction effects , whereby deadweight costs per unit transfer decline with research. The latter effect generates increased levels of political optimal research investment.