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

Terrance Hurley, Xudong Rao () and Philip Pardey

American Journal of Agricultural Economics, 2017, vol. 99, issue 3, 827-836

Abstract: Hurley, Rao and Pardey (2014) analytically and empirically evaluate the internal rate of return (IRR) vis a vis the modified internal rate of return (MIRR) for investments in agricultural research and development (R&D). They find that estimates of the IRR are 2.5 to 5 times larger than the MIRR for a wide range of assumptions, leading them to question the value of the IRR as a metric to represent the rate of return to agricultural R&D. Oehmke (2016) defends the IRR by arguing that it has important properties that the MIRR does not possess. In this article, we critically examine these properties demonstrating that some are not inherent to the MIRR. For other properties, we simply disagree with Oehmke’s assessment of their desirability. Therefore, we are not compelled to change our original recommendation.

Keywords: Internal rate of Return; Benefit Cost Ratio; Net Present Value; Modified Internal rate of Return (search for similar items in EconPapers)
JEL-codes: D22 Q16 Q18 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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