Theory and econometric analysis of state government demand for public agricultural research

Abstract

<p>This study analyzes state government demand for public agricultural research. Several theoretical models of spending are analyzed. These models cover the pure public good and the impure public good formulations. Under the impure specification, the joint-use and the joint product models are analyzed. The pure public good and the impure public good models are analyzed under alternative allocation schemes of Nash-Cournot and Lindahl. The Nash-Cournot reduced-form demand functions show that demand for agricultural research is a function of prices, full income and the amount of spillins from the other states; Lindahl demand depends on prices, income and the share of the total cost of public agricultural research. These demand functions are fitted to U.S. data from 1951-1982. The demand functions, being equilibrium representations, display simultaneity of decisions. To take account of this, the demand functions are estimated as a system. Finally, the alternative models and allocation schemes are tested against each other to determine the specification which best describes state government demand for agricultural research. Results from the test indicate that the joint product model outperforms the pure public good model, thereby implying that agricultural research is an impure public good. A nonnested test to distinguish between the Nash-Cournot and Lindahl models suggests that state legislatures are engaged in noncooperative decision-making for demand for public agricultural research.</p>