Returns to Public Investments in Agriculture with Imperfect Downstream Competition

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Abstract
A multiple‐market framework is developed to measure the size and distribution of research benefits. The model considers an upstream raw product market and a downstream finished productmarket and allows for imperfect competition in the intermediary food‐processing sector. A central conceptual result is derived: an increase in raw product output is a sufficient condition for cost‐reducing innovations in the farm sector to increase social welfare. A special case of linear farm supply and isoelastic processing production functions reveals that necessary conditions for welfare to decrease are a convergent farm supply shift, an oligopsonistic upstream market configuration, and increasing returns‐to‐scale processing technology.

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