Distortions of Agricultural Investment Incentives by Farm Programs: The Case of Agricultural Research

Historically, the U.S. government has made sizable investments in the agricultural sector. These investments have included, for example, enhanced soil conservation as funded by the Agricultural Stabilization and Conservation Service, irrigation facility construction through the Bureau of Land Management; navigation facility construction through the Corps of Engineers and agricultural research through the Department of Agriculture. Traditionally, economic appraisals of such investments have used market prices as a reflection of their social value of the additional production and factor usages stimulated by the projects. Agricultural investment analysis does not always involve market prices. In particular; when projects are appraised in developing economies, the appraisals often use both market prices and economic or shadow prices (Mishan; Gittenger, Squire and Van der Tak).