RETURNS TO PUBLIC-INVESTMENTS IN AGRICULTURE WITH IMPERFECT DOWNSTREAM COMPETITION

A multiple-market framework is developed to measure the size and distr ibution of research benefits. The model considers an upstream raw prod uct market and a downstream finished product market and allows for imp erfect competition in the intermediary food-processing sector. A centr al conceptual result is derived: an increase in raw product output is a sufficient condition for cost-reducing innovations in the farm secto r to increase social welfare. A special case of linear farm supply and isoelastic processing production functions reveals that necessary con ditions for welfare to decrease are a convergent farm supply shift, an oligopsonistic upstream market configuration, and increasing returns- to-scale processing technology.