Re-Examining the Reported Rates of Return to Food and Agricultural Research and Development: Comment

James F. Oehmke

American Journal of Agricultural Economics, 2017, vol. 99, issue 3, 818-826

Abstract: Hurley, Rao, and Pardey (2014) argue to replace the internal rate of return with the modified internal rate of return for the evaluation of public research investment. The crux of their argument is that the internal rate of return “assumes intermediate cash flows can be reinvested (or borrowed) at same return as the initial investment, which is generally not correct or reasonable,” (page 1492). This article first demonstrates that reinvestment decisions are embodied in the project specification, and that the internal rate of return makes no inherent reinvestment assumption. The article then clarifies the algebraic properties of the marginal internal rate of return and the reinvestment implications of the internal rate of return and modified internal rate of return within the context of public agricultural research evaluation.

Keywords: Agricultural research; benefit-cost ratio; internal rate of return; modified internal rate of return; rates of return on R&D (search for similar items in EconPapers)
JEL-codes: G31 Q16 Q18 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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