THE EVOLVING INSTITUTIONAL STRUCTURE OF PUBLIC

AND PRIVATEAGRICULTURALRESEARCH

KEITH O. FUGLIE AND ANDREW A. TOOLE

Over the past several decades, the private sector has assumed a larger role in developing

improved technology for food and agriculture. Private companies fund nearly all food processing

research and development (R&D) and perform a growing share of production-oriented R&D for

agriculture. In addition, institutional partnerships for public–private research collaboration are

growing in the United States and other countries. This article outlines the major forces driving

these changes and offers an interpretive framework to explore some of the implications for the

volume and nature of research performed by the public and private sectors. One of the critical

issues is whether public agricultural research complements and thereby stimulates additional private agricultural R&D investments. Another important issue concerns the role and contribution of

alternative public–private partnership arrangements. To date, changes in the institutional structure

of public and private agricultural research have outpaced systematic investigation, and new theoretical and empirical research is needed to help guide policy and address key societal challenges,

such as climate change, clean energy, water scarcity, food safety, and health.

Key words: Agricultural Biotechnology, Agricultural Input Industries, Complementarity, CRADA,

Institutional Change, Pasteur’s Quadrant, Patent Licensing, Public-private Technology Transfer,

Research Consortia.

JEL codes: O3, Q16, O3.

Most economists and policy makers identify

the growth in agricultural productivity as a

leading reason why global food production

has continued to meet growing food demand.

In turn, evidence suggests that research

and development (R&D) investments in

food and agricultural research systems

produce new knowledge and technologies

that fuel improvements in agricultural productivity. However, over the past several

decades, major changes have taken place

in these research systems, both in terms of

their structure and financing. In particular,

some traditional areas of the public sector

in financing and performing research are

being supplanted by the private sector. In the

United States, three major developments in

the system that generates most of the new

Keith Fuglie and Andrew Toole are with the Economic

Research Service, US Department of Agriculture. Andrew

Toole is also affiliated with the Centre for European Economic

Research (ZEW), Mannheim, Germany. The views expressed in

this article are those of the authors and may not be attributed

to the Economic Research Service or the US Department of

Agriculture. The authors thank Madhu Khanna and the journal’s reviewers for their helpful comments. Correspondence

may be sent to: kfuglie@ers.usda.gov.

technology for food and agriculture are (a)

support for public agricultural research has

stagnated, (b) private agricultural research

spending has grown, and (c) new institution

models have emerged for public and private

research and technology development. This

article reviews these changes and how they

have redefined public and private agricultural

R&D.

We first describe the changing volume,

composition, and structure of private sector agricultural research with a focus on

the United States. Next, we describe major

changes to federal science policy regarding

the nature of public–private research collaboration, including institutional arrangements

such as cooperative research agreements,

patent licensing, and research consortia. We

use the Stokes–Ruttan “quadrant” model of

scientific and technology development as a

conceptual framework to explore implications for the kinds of research performed

by the public and private sectors. We then

review empirical evidence on the economic

implications of these developments. Several recent studies have examined whether

public agricultural research “crowds out” or

Amer. J. Agr. Econ. 1–22; doi: 10.1093/ajae/aat107

Published by Oxford University Press on behalf of the Agricultural and Applied Economics Association 2014.

This work is written by (a) US Government employee(s) and is in the public domain in the US.

American Journal of Agricultural Economics Advance Access published January 20, 2014 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
2 Amer. J. Agr. Econ.

Figure 1. Agricultural research investment and productivity in the United States

Sources: The output and total factor productivity indexes for 1880–1950 are from Hayami and Ruttan, and those for 1950–2009 are from the

Economic Research Service. Public research and extension spending information is from Alston et al. (2010) and private agricultural research and

development spending is from Fuglie et al. (2011).

Note: Private research spending only includes research oriented toward farm productivity and excludes research in food processing.

stimulates private research (i.e., whether they

are substitutes or complements). Few studies,

however, have examined economic implications of direct public–private collaboration in

agricultural research. We selectively review

evidence from other sectors to draw some

lessons for agriculture.

Biotechnology and the Rise of Private-Sector

Agricultural Research

Long-term productivity growth in agriculture is strongly determined by investments

in R&D. In the United States, before 1930

there was little or no measurable change in

agricultural total factor productivity (TFP),

and growth in output came mainly from

bringing new resources into production

(figure 1). Since then, nearly all growth in

output has come from raising TFP, with

aggregate resources used remaining largely

unchanged. The rise in productivity came

after several decades of public investment

in research that began with the 1887 Hatch

Act, but which rose substantially in the first

two decades of the twentieth century. Growth

in public agricultural research spending further accelerated after World War II until the

1980s, after which farm production–oriented

research stagnated (Alston et al. 2010). The

leveling off of public R&D investment since

1980 would seem to imply that agricultural

TFP growth must eventually slow.1 But the

agricultural TFP series maintained by U.S.

Department of Agriculture (USDA), Economic Research Service (ERS), showed few

signs of significant slowdown, at least through

2011 (the latest year of available data).2

1 Models linking R&D investment to TFP growth treat R&D

like an investment in capital but with a long lag between when

the investment is made and when that investment begins to

affect productivity. But like physical capital, knowledge capital

eventually depreciates. Eventually, constant R&D spending just

replaces depreciating R&D stock and further growth in TFP

ceases (Alston et al. 2010). 2 An alternative productivity series constructed by International

Science & Technology Practice & Policy (INSTEPP) and described

in Alston et al. (2010) for 1950–2002 does seem to show a slowing

of U.S. agricultural TFP growth after approximately 1980, but that

series also shows more rapid TFP growth before 1980 than the ERS

series. Both the ERS and INSTEPP productivity accounts show

TFP accounting for virtually all U.S. agricultural output growth

since the mid-twentieth century. They also show almost identical

cumulative output and TFP growth between 1950 and 2002.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 3

One possible reason why flat public R&D

spending may not (yet) have resulted in flat

TFP is that other sources of knowledge and

technology, such as private industry, have

substituted for public R&D. Farm machinery

innovations from the private sector have

been important for U.S. agriculture for a long

time, dating back to the cotton gin (1793), the

mechanical reaper (1831), and the first steel

moldboard plow (1837). By 1900, the farm

machinery industry was the single largest

manufacturing industry in the United States.

Other important areas that emerged later

were food processing, agricultural chemicals, and crop breeding and biotechnology.

Private-sector research expenditures for

food and agriculture research rose relative

to public sector expenditures throughout the

1960s and, by the late 1970s, surpassed public

research expenditures. They have remained

higher than public R&D for the most part

ever since.

For much of the post-1950 period, research

in food manufacturing has constituted

roughly half of the U.S. private food and

agricultural research total. Food manufacturing R&D concentrates on post-harvest

activities that in general do not increase

farm-level productivity.3 More relevant for

agriculture is research conducted by manufacturers of agricultural inputs, such as the

agricultural business segments of machinery,

chemical, pharmaceutical, and biotechnology

companies.

Figure 1 shows that private-sector R&D

spending on agriculture (that is, by firms

providing production inputs to farms) more

than tripled in real terms between 1960 and

2010. Not only has private agricultural R&D

increased, but its composition has changed

markedly. Private agricultural research in

the decades immediately after World War

II focused primarily on farm machinery and

agricultural chemicals. As late as 1980, these

two sectors accounted for more than threefourths of the total. In the 1980s and 1990s,

however, private investment in crop-related

research began to grow rapidly, and by the

late 1990s, private crop seed/biotechnology

research had surpassed research in all other

3 There are some exceptions. Some food processing firms also

develop inputs for production agriculture. The great majority of

food industry R&D, however, appears to be oriented toward the

development of new food products. Moreover, the data reported

here assigns farm-oriented research by food processing firms to

the private agricultural R&D series, such as research by feed

processors to animal nutrition. See Fuglie et al. (2011).

agricultural input sectors. By 2010 (the last

year for which detailed data on private

agricultural research are available), crop

seed/biotechnology made up more than 45

percent of the total (figure 2). This, in turn,

drove an increase in private crops research

in general, whereas private animal research

has not grown much in real terms. Some of

the increase in seed/biotechnology research

represented a substitution from agricultural

chemical research (especially with the development of genetically engineered crops for

insect resistance and herbicide tolerance),

but the total of seed/biotechnology and agricultural chemical research also increased in

real terms. This rise in private agricultural

research could provide an explanation for

why agricultural TFP growth did not stagnate

after the leveling off of public agricultural

R&D after 1980. Of course, the rise in private

R&D spending itself could be incentivized

by advances in public science and technology, in which case stagnation in public R&D

spending may eventually lead to stagnation

in private R&D investment as the pipeline of

opportunities for commercial development

dries up. This is an issue we revisit later in the

article.

A number of factors drove the increase in

private crop-related research. Advances in

molecular genetics opened up new technological opportunities in agricultural

biotechnology. These included many steps

over a long period of time, but one of the

notable developments was the production

and replication of DNA recombined from

multiple organisms. The fundamental scientific advances in recombinant DNA were

made at open science research institutions,

especially Stanford University. At the same

time, strengthened intellectual property protection over biological inventions helped

incentivize private, for-profit research in

breeding and genetics. The United States

enacted the Plant Varietal Protection Act in

1970, and expanded its scope in 1994. More

important, however, was the extension of

utility patent protection for microorganisms

in 1980 through a U.S. Supreme Court decision (Diamond v. Chakrabarty) and to higher

plants and animals in 1985 and 1987, respectively, through internal U.S. Patent Office

decisions. Finally, growth in global agricultural input markets, resulting from increased

global demand for agricultural products, privatization of agricultural input markets, and

falling barriers to trade, expanded market

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
4 Amer. J. Agr. Econ.

Figure 2. Changing composition of private agricultural research by U.S. companies

Source: Fuglie et al. (2011).

opportunities for private research both in the

United States and worldwide (Fuglie et al.

2012; Pray and Fuglie 2002; Shoemaker et al.

2001).

The growing role of the private sector as a

major source of food and agricultural innovation is not limited to the United States.

Globally, the private sector accounted for

approximately 36% of the $54 billion spent

on food and agricultural research in 2008

(figure 3), and its share has risen over time

(Bientema et al. 2012). A bit less than half

of the private-sector R&D spending was oriented toward farm production and the rest

toward food manufacturing. Although more

than 90% of private research done globally

was by companies based in high-income

countries, developing countries represented

an important market for the machinery,

chemical, pharmaceutical, and biological

products these firms sold to farmers for use

as inputs into agricultural production (Fuglie

et al. 2011). Public food and agricultural

research was mostly oriented toward agriculture rather than food, although a precise

breakdown is not available. In high-income

countries like the United States, a declining

share of public food and agricultural research

is devoted to production agriculture. In 2008,

only about 57% of U.S. public agricultural

research was allocated to crop and animal

production, and the remainder was allocated

to other topics, such as broader environmental issues or to food and human nutrition.

Also by 2008, the private sector accounted

for more than half of total U.S. production agriculture research and more than

three-quarters of total U.S. food research.

Concurrent with the rise of private sector

research on agricultural inputs was significant

structural changes in these industries. Mergers and acquisition activity led to fewer and

larger firms accounting for a larger share

of R&D, ownership of proprietary technology, and market sales. By 2009, the four-firm

concentration ratio in global markets for

commercial crop seed, agricultural chemicals, animal health products, farm machinery,

and animal genetics had all risen to more

than 50% (table 1). Although several, often

industry-specific, reasons explain the rising

concentration in these industries, in the crop

and animal genetics industries, economies

of size in biotechnology R&D seem to have

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 5

Figure 3. Public and private spending on food and agricultural research in 2008

Source: Global figures are from Bientema et al. 2012. For the United States, private figures are from Fuglie et al. (2011), and public figures from

the National Institute of Food and Agriculture.

Notes: Figures are in billions of 2008 purchasing power parity dollars. Figures may not add up due to rounding.

played a significant part. Companies investing in agricultural biotechnology sought to

acquire complementary technology and marketing assets and serve larger markets to

spread the large fixed costs associated with

research and meeting regulatory approval for

new innovations (Fuglie et al. 2011). Integration of biological and chemical technologies

for crop protection also drove mergers across

the seed and agricultural chemical industries. Between 1994 and 2009, the increase in

concentration was particularly acute in the

global seed market, with the four-firm concentration ratio rising from 21% in 1994 to

54% in 2009. Although high levels of industry

concentration raises concerns about excessive

market power, if it increases incentives for

private R&D, it could be welfare enhancing. By stimulating more rapid economic

growth, it could offset short-run welfare

losses from the exercise of monopoly power.

In essence, monopoly rents form a new pool

of resources to fund agricultural R&D. The

evidence from table 1, however, suggests

that despite the rise in concentration, R&D

intensity (R&D spending as a percentage

of industry sales) hardly changed in these

industries. It would seem that most merger

activity occurred among firms with similar

R&D intensities. One implication may be

that potential short-run social welfare losses

from greater monopoly power have not been

offset by potential long-run social welfare

gains from more rapid technical change.

The Evolving Institutional Relationships

for Public–Private Collaborative R&D

and Technology Transfer

Stronger incentives and greater capacity

for research in the private sector changes

the portfolio allocation of publicly funded

research and creates new opportunities for

public–private research collaboration and

technology transfer. Public research may

focus more on upstream, fundamental science, leaving more applied research and

market development to the private sector.4

However, to efficiently transform advances in

fundamental sciences into commercial opportunities may require closer collaboration

between public and private institutions.

In the United States, new laws and regulations were put in place in the 1980s and

1990s to encourage the transfer of technology between public research laboratories

and the private sector. These laws affected

ownership rights to new technologies developed with government funds and established

mechanisms for direct research collaboration

between public- and private-sector scientists.

4 The way in which the public and private sectors delineate their

areas of responsibility will vary by technology field and depending

on who the end-users of new technology are. Huffman and Evenson

(2006)(p. 51) and Ruttan (p. 220–21) present a detailed description

of the linkages among scientific and technology disciplines and

between public and private sectors in the U.S. agricultural research

system.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
6 Amer. J. Agr. Econ.

Table 1. Market Concentration and R&D Intensity in Global Agricultural Input Industries

Four-Firm Eight-Firm

Herfindahl Concentration Concentration Industry R&D

Year Index Ratio Ratio Intensity

Share of Market (%) R&D/Sales (%)

Crop protection chemicals

1994 398 28.5% 50.1% 7.0%

2000 645 41.0% 62.6% 6.8%

2009 937 53.0% 74.8% 6.4%

Crop seed/biotechnology

1994 171 21.1% 29.0% 11.0%

2000 349 32.5% 43.1% 15.0%

2009 991 53.9% 63.4% 10.5%

Animal health

1994 510 32.4% 57.4% 8.6%

2000 657 41.8% 67.4% 8.5%

2009 827 50.6% 72.0% 8.6%

Farm machinery

1994 264 28.1% 40.9% 1.9%

2000 353 32.8% 44.7% 2.3%

2009 791 50.1% 61.4% 2.7%

Animal genetics

1994 NA NA NA NA

2000 NA NA NA NA

2006/07 1,025 55.9% 72.8% 7.3%

Source: Fuglie et al. (2011).

Note: NA = not available.

The primary goal was to increase the economic impacts of public R&D by moving

public research findings that have commercial potential rapidly into the marketplace

(Day-Rubenstein and Fuglie 2000).

The USDA and state agricultural universities responded to this new framework by

strengthening ties with the private sector. The

traditional model of technology transfer was

for public institutions to provide technologies

and knowledge directly to users (farmers,

processing companies, agricultural input suppliers) through the agricultural extension

service or indirectly through publication

and media channels. The atomistic structure

of the agricultural sector, which includes

many small, competitive farms, meant that

these farms had few incentives to conduct

their own agricultural research. However,

the expansion of private-sector agricultural R&D did not take place on farms, but

instead was largely driven by firms in the

manufacturing and service sectors seeking

to spin off applications to agriculture. The

growing agricultural R&D capacity in these

machinery, chemical, pharmaceutical, and

especially biotechnology firms created new

opportunities for public–private partnerships in agricultural technology development

(Fuglie et al. 1996).

The Changing Environment for Technology

Transfer

The development of technology transfer

policy in the United States has been incremental. Congress has enacted successive

pieces of legislation aimed at creating new

institutions for technology transfer between

the public and private sectors and periodically has introduced modifications to improve

or strengthen them. Some of the major technology transfer legislation that has affected

the food and agricultural sector are listed in

table 2.

One of the first major changes dealt with

patent policy. Although universities and public institutions had for some time possessed

the right to seek patents, the federal government assumed ownership of any invention

resulting from federally funded research.

Discoveries described in patents are often

far from commercial viability, however, and

without exclusive licenses, companies may be

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 7

Table 2. Major U.S. Legislation Encouraging Public–Private Research Collaboration and

Technology Transfer

Year Legislation Action

1980 Stevenson–Wydler

Technology

Innovation Act

Encouraged government laboratories to increase

cooperation with the private sector. Each major

government laboratory was directed to create an

Office of Research and Technology Applications to

facilitate technology transfer to private companies.

1980 Bayh–Dole Act Authorized government agencies to grant exclusive

licenses to government-owned patents and allowed

universities to own patents on research developed

with government funds

1981 Economic Recovery Tax

Act

Tax credit for R&D grants to universities for basic

research

1982 Small Business

Innovation

Development Act

Established the SBIR Program. The program requires

a minimum percentage of each federal agency’s

extramural R&D budget to be allocated to small

businesses.

1984 National Cooperative

Research Act

Encouraged companies to conduct joint research by

providing exemptions to antitrust (competitiveness)

laws for technologies developed in research

consortia

1986 Federal Technology

Transfer Act

Authorized government research laboratories to enter

into CRADA with private companies

1988 Omnibus Trade and

Competitiveness Act

Created the Manufacturing Extension Partnership to

assist small companies in accessing knowledge and

technologies developed in government laboratories.

It also created the ATP to provide seed funding,

matched by private-sector investment, to companies

or consortia of universities, industries, and

government laboratories to accelerate development

of generic technologies that have broad applications

across industries. The ATP was terminated in 2007.

1993 National Cooperative

Production

Amendments Act

Extended antitrust exemptions to include joint

manufacturing (not just joint R&D)

Source: Schacht (2012).

unwilling to make the investments necessary

to commercialize them. Responding to this

constraint, the Bayh–Dole Act (the Patent

and Trademark Act Amendments of 1980)5

gave institutions “certainty of title” for inventions resulting from research funded by the

federal government. The legislation allowed

universities, nonprofit organizations, and

other institutions receiving government funding for research to obtain, own, and license

the patents on any invention they discovered.

It also expanded the right of federal laboratories to issue licenses for patents of their

5 U.S. laws are often referenced by the names of their principal

sponsors as well as by their official title. In addition, they are

designated a specific number (Public Law 96-517 in the case of

the Bayh–Dole Act).

inventions. Previously, federal laboratories

had been able to grant only nonexclusive

or open licenses, but the Bayh–Dole Act

allowed them to grant exclusive licenses as

well. These changes to patent policy were

designed to encourage scientists at universities and other public institutions to seek

more patents and to provide private companies with incentives to work with these

patents.

Other legislation sought to promote

greater research collaboration between

government laboratories and private companies. The 1980 Stevenson–Wydler Technology

Innovation Act mandated that each federal

agency develop specific mechanisms for disseminating government innovations. Before

this act, technology transfer activities by

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
8 Amer. J. Agr. Econ.

Figure 4. Models of public–private research collaboration and technology transfer

Source: Day-Rubenstein and Fuglie (2000).

federal agencies had been voluntary, and

each agency had used its own method of

disseminating information on new research

discoveries and technology. Further incentives were provided in the 1986 Technology

Transfer Act. This act spelled out conditions

under which federal laboratories could work

directly with researchers employed by private companies. This involves developing a

written agreement between the public and

private research partner that specifies the

responsibilities and resource commitments

of each. These agreements are referred to

as Cooperative Research and Development

Agreements (CRADAs). Before the 1986 act,

government researchers were not permitted

to collaborate directly with private firms. Further legislation in 1991 (the National Defense

Reauthorization Act) and 1995 (the National

Technology Transfer and Advancement Act)

clarified the rules regarding patent licensing

and royalty sharing for inventions developed

in CRADAs.

Other initiatives encouraged government

agencies to provide direct research grants to

the private sector. The Small Business Innovation Act of 1982 required federal agencies

to earmark a portion of extramural research

funds to small companies (i.e., companies

with 500 or fewer employees) through the

Small Business Innovation Research (SBIR)

program. The 1981 Economic Recovery Tax

Act provided tax credits for research grants

given by companies to universities. Other

legislation sought to encourage research

cooperation among firms within industries.

The 1984 Cooperative Research Act provided

incentives for private research consortia by

providing some antitrust exemptions and

liability limits on companies collaborating

on precommercial R&D. In 1988, Congress

created incentives for public–private research

consortia through the Advanced Technologies Program (ATP). The ATP provided

seed funding (with matching private R&D

investment) to consortia of companies, universities, and government laboratories for

the development of generic technologies

with broad application across industries.

The ATP was replaced by the Technology

Innovation Program in 2007, which excluded

large companies from receiving government research grants, but the Technology

Innovation Program was terminated in 2012.

Models of Technology Transfer

The legislation described previously governs

the exchange of information and resources

between public and private collaborating

institutions and, in general terms, states how

rights to new inventions are to be owned and

benefits shared. Figure 4 presents a stylized

model of the various mechanisms available

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 9

to government research agencies for cooperating with the private sector and other

nongovernment institutions.

The research grant model. The simplest

mechanism for collaborative research is for

the government to fund private in-house

research. In this model, there is no formal

research collaboration between a government lab and the nongovernment partner,

and the grant recipient has sole ownership

over any patentable technology. This type

of arrangement characterizes the SBIR program and the former Advanced Technology

Program. Often, government R&D grants

are targeted toward projects of high government priority. In 2000, the USDA and

Department of Energy combined a portion

of their SBIR resources to form the Biofuel

Research and Development Initiative. The

Biofuel Research and Development Initiative

provided research grants to companies for

biofuel-related “plant science research” and

“biorefinery demonstration and deployment”

projects, as well as feasibility studies on next

generation biofuels (Fuglie et al. 2011).

The patent licensing model. Under the

patent licensing model, a public research

institution develops and patents a technology and then assigns the rights to use the

patented technology to nongovernment

institutions or private companies. The rights

may be exclusive, partially exclusive, or

nonexclusive (Heisey et al. 2006). Exclusive patent licenses are awarded when they

are deemed necessary to promote private

commercialization—for example, when a

company must make significant investments

in product and market development or when

substantial commercial risk is involved.

Patent licenses usually include a royalty

payment that returns either a fixed fee

or a percentage of revenues to the public

institution that owns the patent.

The CRADA joint-venture model. A

CRADA typically involves a government

laboratory collaborating with one company

to develop a technology for a specific commercial application. Both parties commit

in-house resources to R&D, and the nongovernment collaborator may provide the

government laboratory with some research

funds. Government laboratories may provide personnel, equipment, and laboratory

privileges, but not financial resources, to

a nongovernment partner. Patents resulting from a CRADA may be jointly owned,

although the nongovernment partner has first

right to negotiate an exclusive license. Some

data also may not be publicly disclosed for

a certain period of time (Day-Rubenstein

and Fuglie 2000). The first CRADA that was

established by a federal agency after the passage of the 1986 Technology Transfer Act was

between the USDA and Embrex, Inc., which

led to the commercialization of a method for

vaccinating poultry against disease before

they hatch.

The research consortium. The research consortium is a somewhat more complex model.

Unlike a CRADA, which involves only one

private and one public partner, a consortium

brings together several private companies to

undertake joint research, with or without a

public-sector partner. Consortium members

contribute resources for the research, which

is usually precommercial, and have first rights

to technologies developed by the consortium.

Companies can protect spinoff technologies through trade secrets or new exclusive

patents. Research consortia have proven useful for increasing support for research that is

considered to be long term and high risk and

for research to develop common standards

in an industry. Additional applied and adaptive research is often required, however, to

develop and diffuse technology to farmers or

other users. Thus, a consortium often relies

on the in-house research capacity of its members to develop specific applications from the

more generic results of consortium-sponsored

research.

Public–Private Research Collaboration on the

Basic Applied Research Spectrum

Underlying these changes in federal science

policy was the emergence of a new paradigm

of the relationship between scientific research

and technology development. Previously,

the principal paradigm for U.S. science policy was a linear or assembly line model in

which advances in basic scientific knowledge

lead to new technological applications. This

paradigm was persuasively expressed by

Franklin Roosevelt’s science advisor Vannevar Bush in Science: The Endless Frontier.

Bush argued for a strong government commitment to support curiosity-driven basic

science, which would subsequently feed

into private sector–led technological and

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
10 Amer. J. Agr. Econ.

Figure 5. Technology transfer mechanisms along the basic applied research spectrum

Source: Adapted from Stokes and Ruttan.

Notes: On the y-axis, research endeavors are divided among those that seek fundamental scientific understanding and those aimed at technology

development. On the x-axis, research endeavors are characterized by those that are inspired by potential commercial use and those that are aimed

at other societal needs.

commercial applications. Over time, a more

complex interpretation emerged regarding

the relationship between scientific research

and technology development. “It is no longer

believed that a heavy investment in pure,

curiosity-driven basic science will itself guarantee the technology required to compete

in the world and meet a full spectrum of

other societal needs” (Stokes 1997, p. 58).

Critics of the linear model emphasized that

advances in science and technology are often

closely inter-related, with the distinction

between who “does science” and who “does

technology” becoming increasingly blurred

(Ruttan 2001, p. 536). In 1997, Princeton

political scientist Donald Stokes, drawing on the example of nineteenth-century

French chemist Louis Pasteur, proposed a

new science policy paradigm. Stokes made a

distinction between basic scientific research

that is motivated solely by the quest for

understanding without thought of practical

use and research that seeks to extend frontiers of understanding but is also inspired

by considerations of use. He labeled pure

science endeavors as “Bohr’s Quadrant,”

after the Danish physicist Niels Bohr’s search

for a model of atomic structure, and useinspired science as “Pasteur’s Quadrant,”

whose research to improve fermentation

led to fundamental advances in microbiology. Stokes relegated research that is guided

solely by applied goals without seeking more

general scientific understanding to “Edison’s

Quadrant” (figure 5). Later, Ruttan modified Stoke’s paradigm by making a further

distinction between applied R&D for commercial use and applied R&D that addresses

other society goals. In addition to economic

growth, public science may be expected to

contribute more broadly to societal welfare,

including security, human and environmental health, equity, and other quality-of-life

issues. Ruttan labeled this type of research

as falling into “Rickover’s Quadrant,” in

reference to the effort by Admiral Hyman

Rickover to develop the first power plants

for nuclear submarines. Ruttan placed much

of federal and state investment in agricultural research in Rickover’s Quadrant, noting

that it focused on developing technologies

that significantly affected U.S. agricultural

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 11

productivity, but in areas where commercial

returns were low because of the difficulty for

private innovators to appropriate returns.

Besides defense and agriculture, much of

the applied research in social sciences and

policy, environment, and health, and research

that supports government regulatory functions and program performance, also fall into

Rickover’s Quadrant.

Although the research paradigm described

in figure 5 suggests distinct areas of responsibility for public and private research, it does

not imply that research institutes or scientists

working in these institutes are homogeneous

or monolithic. Scientists working on agricultural biotechnology may have different value

orientations, which affect their willingness

to engage in research with proprietary or

commercial applications (Glenna et al. 2011).

In the Stokes–Ruttan framework, individual

scientists could place themselves exclusively

or primarily in the Bohr, Rickover, or Pasteur

Quadrants, depending on their value orientation. Similarly, entire research institutes or

departments could carve out a specialized

role in one of these domains. Figure 5 also

does not imply that all applied applications of

agricultural biotechnology fall into Edison’s

Quadrant. The development of crop and

livestock genetic traits with positive environmental attributes (e.g., water conservation

and reduced greenhouse gas emissions),

that enhance the nutritional content of

food, or that are targeted toward specialty

or “orphan” commodities are examples of

applied agricultural biotechnology where

gaps between social and private returns

are likely to be large (National Research

Council).

In figure 5, we show the new institutional

arrangements such as CRADAs and research

consortia as potential bridging mechanisms

across these scientific and technology quadrants. Although CRADAs typically involve

single public and private partners and focus

on one narrowly defined project, a consortium may involve multiple partners from

both sectors and include exploration of a

wider array of R&D opportunities. Joint

public–private research endeavors include

both precommercial research (performed by

the public partner, but possibly with funding from the private partner) and applied

research and technology development aimed

at commercialization of new products and

processes (performed mainly by the private

partner).

Dynamic Response of Public and Private

Agricultural Research

To this point, our analysis highlights both the

growth in private agricultural R&D investments and the emergence of new institutional

mechanisms for public–private research

collaboration as major forces shaping the

structure of the agricultural research system.

In this section, we examine the extent to

which these changes have altered the respective roles of the public and private sectors in

the agricultural research and development

process.

The growth of private R&D investment is

likely to have a lasting influence on both the

volume and mix of projects undertaken by

the public and private sectors. For the private

sector, the overall volume of projects has

increased in response to better technological

opportunities, stronger appropriability conditions, and larger markets. Improvements in

technological opportunities moved (at least

some) previously unprofitable projects into

profitability and also introduced new projects

that were not previously foreseen. Stronger

appropriability conditions increased the private returns to existing projects by allowing

companies to capture more of the overall

stream of project benefits. That is, private

companies now capture a greater share of the

social return from a project. Larger markets

made it profitable to undertake new R&D

projects aimed at inventing novel products

and services or adapting existing products

and services to new customer needs.

Better technological opportunities and

stronger appropriability conditions suggest a

reorientation of private sector research and

a new mix of active research projects. Some

projects that were only attractive to publicsector funders, because of higher social

returns than private returns, are now attractive to private-sector performers. In terms

of figure 5, some previously unprofitable

projects in Rickover’s Quadrant become

profitable and shift to Edison’s Quadrant.

An early illustration of how changes in intellectual property rights over agricultural

innovations may affect private incentives for

agricultural research is the case of soybean

breeding in the United States. Before the

1970 Plant Varietal Protection Act, there was

little soybean breeding taking place in the

private sector, and almost all farmer varieties

were from university breeding programs.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
12 Amer. J. Agr. Econ.

With breeder’s rights, private investment

in soybean breeding grew rapidly. By the

1990s, private proprietary varieties accounted

for more than 80% of new soybean variety releases (Huffman and Evenson 2006).

Advances in biotechnology and other sciences that create entirely new technological

opportunities, on the other hand, expand

the size of these quadrants, including new

endeavors that require scientific and technology competencies that span across the Edison

and Pasteur Quadrants. Private firms may

have an incentive to extend some of their

own research into Pasteur’s Quadrant and/or

seek public partners who can fill this role.

Such scientific advances may be accompanied

by changes to intellectual property regimes,

such as the U.S. Supreme Court rulings that

established the patentability of biological

inventions.

For the public-sector research institutions, the growth in private-sector R&D is

likely to influence the mix of projects more

than the volume (because of budget constraints). As the private sector reorients its

portfolio toward research areas that were

traditionally and predominantly public, the

project selection criteria for allocating public support become critically important for

maintaining the proper balance within the

research system. As Jaffe points out, publicsector decision makers need to support

those projects with scientific/commercial

potential that have large “spillover gaps,”

defined as how much social returns exceed

private returns. It is clear that the spillover

gap is reduced when stronger appropriability

conditions allow private companies to capture a greater share of the social return. In

these cases, public decision makers need to

reassess the spillover gaps expected from

their research programs and reallocate

resources to new projects as necessary.

The new institutional mechanisms for

public–private collaboration, which is the

second major structural change to the

agricultural research system, represent an

opportunity to restructure research relationships and transition the public and private

portfolios. In the current environment, both

public and private sector organizations have

stronger incentives to collaborate. For the

public sector, some established and ongoing

research areas have experienced a reduction

in the spillover gap and increased potential for privatization. In these areas, private

returns have increased relative to social

returns because of stronger appropriability

and new technological opportunities stemming from public research. For public-sector

decision makers, their collection of research

materials, equipment, and personnel should

be attractive to the private-sector partners

because these are the research areas where

the private sector wants to transition its

portfolio to take advantage of increased

returns. As these collaborative relationships

evolve, public-sector decision makers can

transition to new program areas, topics, or

research areas in Pasteur’s Quadrant where

the spillover gaps remain large. At the same

time, public institutions may have incentives

to partner with private firms to access new

technical knowledge in Edison’s Quadrant

that complements and informs more basic

Pasteur-style research.

Evidence on the Nature and Interactions

between Public and Private R&D

There are a handful of recent empirical studies that attempt to characterize the nature

and interactions between public and private agricultural R&D. Most of this work

draws its conceptual framework from a

broader literature that asks whether public

R&D “complements” or “substitutes” for

private R&D (David, Hall, and Toole 2000;

Toole 2007). Complementarity takes place

when public R&D investments stimulate

additional private R&D investments. This

could happen because of differences in the

nature of the research conducted in public

and private organizations. For instance, if

public-sector researchers conduct curiositydriven or use-inspired basic research (Bohr’s

or Pasteur’s Quadrant), the results may

improve technological opportunities for privately conducted applied research (Edison’s

Quadrant). Substitution (or “crowding out”)

takes place when public funds support R&D

activities that would otherwise have been

completed by the private sector. Substitution is more likely when public and private

researchers work in the same topical areas

(e.g., crop research) and conduct research

that falls in the same quadrant of the modified Stokes framework (i.e., the same nature

and objectives). When substitution takes

place, private firms have reduced their own

investment relative to a situation without

public funding. In regression analyses, finding a positive and significant effect of public

R&D on private R&D is taken as evidence

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 13

Figure 6. The allocation of public and private sectors in agricultural research in the United

States

Source: King, Toole, and Fuglie (2012).

Note: ∗Private sector investment is likely to be greater than zero, but reliable figures could not be obtained.

of a complementary relationship, whereas a

negative and significant coefficient indicates

substitution.

Comparisons of public and private agricultural R&D resource allocations across

topic areas reveal a fairly distinct division

of research effort that seems consistent with

prior beliefs about the size of spillover gaps.

Narrod and Fuglie used various indicators to

create a ranking of spillover gaps (lowest to

highest) across livestock breeding in poultry,

swine, and beef/dairy. Based on their ranking, the private sector should allocate more

R&D to poultry and the least to beef/dairy,

with the public sector having the opposite

ranking. Their data for 1996 are consistent

with this ranking. They also find that the

public sector allocated more of its research

to Pasteur science (microbiology), whereas

private industry allocated more to Edison

applied R&D (breeding). For more recent

data covering a broader array of topic areas,

King, Toole, and Fuglie (2012) showed the

public–private division of research across

major fields of food and agricultural research

(figure 6). Private R&D dominated food

manufacturing and farm machinery, whereas

public R&D addressed a broad set of socially

important issues such as environment and

natural resources, food nutrition and safety,

economics and statistics, and community

development, for which private R&D incentives are especially weak. The public sector

also dominated animal R&D, except for

animal health product development. The

important exception appears to be crop

research, where each sector spent roughly

equal amounts on R&D (private crop-related

R&D included work on crop breeding and

biotechnology as well as chemical pesticides).

Although crop research shows significant

R&D activity by both the public and private sectors, differences in the nature of the

research conducted suggests complementarity rather than substitution. Frey, who

conducted a near-census survey in 1994 of

U.S. public and private crop breeding institutions and companies, found that even though

the private sector employed nearly twice as

many plant breeders (1,499) as the public

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
14 Amer. J. Agr. Econ.

Figure 7. Public and private research allocation in U.S. plant breeding

Source: Frey (2000).

sector (706), 80% of private-sector breeders

were concentrated on downstream “cultivar

development” (figure 7). The more upstream

“germplasm enhancement” and “basic plant

breeding research” were primarily in the

public sector. Because scientific advances

from upstream research are hard to appropriate, private returns to research in these

areas are likely to be significantly lower than

their social returns (i.e., a large spillover gap).

Frey’s descriptive findings were extended by

Fuglie and Walker, who performed regression analysis of public and private research

on eighty-four commodities based on the

Frey database. They found that commodities

with higher levels of public basic research

(basic breeding and germplasm enhancement), after controlling for market size and

other factors, were associated with higher

private applied R&D (cultivar development),

whereas higher public applied research

(cultivar development) was associated with

less private applied R&D. This evidence

suggests that within broad topic areas such

as crop research, it is necessary to look at

the nature of research conducted to assess

complementarity.

Several recent studies have used regression analyses to test complementary versus

substitution in public and private agricultural

research. Most of these studies focus on the

United States and generally find evidence

of complementarity. Toole and King (2011)

analyzed agricultural patenting by companies

in the chemical and allied products industry

and found that public agricultural research

performed in universities stimulated (and

thereby complemented) private invention

at the firm level. Using the Standard and

Poor’s Compustat database for the period

1991–2003, Wang, Xia, and Buccola (2009)

estimated an elasticity of private agricultural

R&D with respect to public life sciences

research of 0.65 (i.e., a 1% increase in public

research leads to a 0.65% increase in private

R&D). Tokgoz, using national aggregate

R&D expenditure data, found that public

basic life sciences research had a positive

and significant elasticity of 0.69 on private

agricultural R&D but found no significant

relationship between public applied life sciences research and private agricultural R&D.

Using agricultural R&D data extended to

more recent years and disaggregated into

components, Tokgoz and Fuglie found that

public agricultural R&D stimulated private

“land-saving” R&D but not private “laborsaving” R&D. Their elasticity estimates for

private land-saving R&D ranged from 0.61

to 0.97. Wang et al. (2013) separated private

R&D into crop and livestock components.

Using a vector autoregression model and

data covering 1970–2009, they found that a

shock (exogenous spending increase) to public crop research caused private crop research

to rise, but no significant interactions were

found between public and private livestock

research. Wang et al. (2013) also found that a

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 15

shock to private applied crop research caused

public applied crop research to fall and

that a negative shock to public applied crop

research led to public research in other agricultural areas to rise. These results suggest

the public sector responded to the changing

market and institutional environment by reallocating its research portfolio in a way that

avoided direct competition with the private

sector. However, evidence of short-run substitution between public and private funding

of bioscience at U.S. universities was found

by Buccola, Ervin, and Yang (2009). Based on

a national survey of U.S. academic bioscience

researchers in 2003–04, they found that

individual scientists tended to specialize in

their sources of research funding and that an

increase in private funding led to a decrease

in public funding (and vice-versa) for that

scientist. This could cause crowding out in

funding sources in the short run but would

not likely affect the system level in the longer

run given entry and exit possibilities of new

scientists. International evidence is relatively

sparse, and findings are mixed. In a study of

agricultural R&D investment in China, Hu

et al. (2011) found private agricultural R&D

spending increased with public investment

in basic research but decreased with public

investment in development research. However, Alfranca and Huffman (2001), using

data from seven European Union countries

in the period 1984–1995, found significant

crowding out (substitution) between public

and private agricultural research spending.

Evidence on the Success of the New

Institutional Mechanisms

Despite the considerable importance given

to public–private technology transfer in federal science policy, there is surprisingly little

evidence on whether these measures are

actually effective at stimulating more rapid

economic growth. Most studies have either

described impact in terms of “success stories”

of technologies that were commercialized

or conducted assessments of how processes

and procedures used in public–private R&D

arrangements might be improved. A recent,

comprehensive review of technology transfer across federal laboratories found that

in measuring success agencies rely primarily on activity metrics (Hughes et al.

2011), which are now reported systematically by federal agencies on an annual basis

(see National Institute of Standards and

Technology 2012). In this section, we provide

a selective review of empirical studies on the

economic implications of the new technology

transfer mechanisms, focusing on the SBIR,

CRADA, and consortia models and referencing evidence involving agricultural and life

sciences research where possible.6

SBIR grants The academic literature on

the impact of the SBIR program on business performance is mixed. Studies using

survey data collected from SBIR participants,

either at the project or firm level, consistently

find positive program effects across a variety of indicators such as sales, employment,

and patenting (Archibald and Finifter 2003;

Audretsch 2003; Audretsch, Link, and Scott

2002; National Institutes of Health 2003).

But survey-based evidence frequently lacks

a credible counterfactual: How would these

firms have fared in the absence of an SBIR

grant? In contrast, regression-based evaluations using data from both participant and

nonparticipant firms, such as those of Lerner

and Wallsten, do not find significant sales

or employment effects from participation

in the SBIR program. However, Lerner did

find that SBIR participant firms located in

regions with substantial venture capital activity had better employment and sales growth

than nonparticipant firms. Toole and Czarnitzki note that the SBIR program serves

an important “bridging” function that can

increase incentives for private-sector sources

of finance to support new technologies. Using

data that included agricultural and nonagricultural companies, Toole and Turvey showed

that participation in the SBIR program

allowed firms to reduce technical and market

uncertainties and increased the probability

of obtaining follow-on funding from venture

capital investors. Their theoretical results suggest that banks and other sources of private

financing would respond similarly.

CRADAs Federal agencies enter into

about 3,000 new CRADAs with private firms

6 Our focus is primarily on research collaboration involving

federal research agencies. There are also myriad arrangements for

research collaboration between private companies and universities,

but these are outside the scope of this article. In particular, we

do not cover economic implications of the patenting provisions

of the Bayh–Dole Act. See Mowery et al. (2001) and Kenney

and Patton (2009) for critical perspectives of the implications of

Bayh–Dole for commercialization of university inventions.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
16 Amer. J. Agr. Econ.

each year (National Institute of Standards

and Technology). Probably the most wellknown and controversial CRADA was a 1991

agreement between the National Institutes

of Health (NIH) and the pharmaceutical

company Bristol-Myers Squibb (BMS) to

commercialize the naturally occurring taxol

compound into an anticancer drug. The

CRADA was successful in mobilizing significant private sector resources to bring

the drug to market and develop alternative

sources of supply to the Pacific Yew tree

(from which the compound was first isolated). The drug was also very profitable

for the private-sector partner, becoming by

2001 the best-selling anticancer drug in the

world. A 2003 study by the Government

Accounting Office questioned the terms of

the CRADA, noting that royalties received

by NIH amounted to only a fraction of NIH’s

own substantial investment in taxol and that

the agreement did not restrict what BristolMyers Squibb could charge for the drug

(Government Accounting Office).

Whether public–private research partnerships draw public resources away from the

provision of public goods to the subsidy of

private goods is a recurring theme in debates

on collaboration mechanisms, but evidence

on this question is mostly anecdotal. In fact,

largely because of a lack of data, the academic literature contains very few studies

evaluating CRADA performance (Cohen

and Noll 2005; Stiglitz and Wallsten 2000).

One exception is Day-Rubenstein and Fuglie

(2000), who examined how public research

resources were allocated among the USDA’s

CRADA agreements, SBIR grants, and intramural research between 1986 and 1995. They

found that CRADA and SBIR, compared

with USDA intramural research, placed

greater emphasis on postharvest utilization,

similar levels of emphasis on production

agriculture, and relatively less emphasis on

natural resources and human nutrition. This

corresponds to what we might expect about

the relative size of the spillover gap between

social and private returns, being largest in

the case of environmental and nutritional

goods and services and smallest in the case of

postharvest products. However, the authors

did not find evidence that private collaboration influenced USDA research priorities

toward private preferences. In fact, over this

period, overall USDA intramural research

resource allocation shifted slightly toward

more environmental and human nutrition

research, areas with the smallest share of

CRADA and SBIR activity.

Research consortia. The academic literature on industry consortia is quite

large, even when restricting attention to

government-supported industry consortia.

Although it is not feasible to summarize this

literature here, the studies are generally of

two varieties: (a) case studies or comparative case studies (Grindley, Mowery, and

Silverman 1994; Katz and Ordover 1990;

Roos, Field, and Neely 1998; Sperling 2001;

Thornberry 2002) and (b) quantitative studies

based on survey results (Aldrich and Sasaki

1995; Link, Teece, and Finan 1996; Sakakibara 1997). Although existing studies do not

consider agricultural consortia, some lessons

can be learned from the experience of other

industries.

Perhaps the most well-known governmentsupported research consortia in the United

States is SEMATECH, a partnership formed

in 1987 between the U.S. government and

fourteen U.S.-based semiconductor manufacturers to enhance U.S. competitiveness

in the global semiconductor business. Each

member company contributed financial and

human resources, with government matching

support, to a central research facility owned

and managed by the member companies.

The research facility was located in space

rented from the University of Texas, although

no public research institution was directly

involved in the consortium. Government

matching funds were discontinued after 1996,

and SEMATECH has continued to operate solely through member support since

then.

Grindley, Mowery, and Silverman (1994)

provide a detailed discussion of SEMATECH’s evolution and a comparative analysis

with other high-technology consortia in Japan

and Europe. They highlight three complex

design and management challenges that all

consortia face: (a) how to define the research

agenda and projects to undertake; (b) how

to transfer research results to participants;

and (c) how to allow sufficient flexibility to

permit change as industry needs and circumstances evolve. In contrast with most

European consortia, SEMATECH’s centralized management structure and strong

industry control allowed it to address these

problems more efficiently. Moreover, they

point out that the feasibility and eventual

success of consortia-style collaboration in

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 17

Figure 8. USDA collaborative research and technology transfer with private industry

Source: Number of active CRADAs, active patent licenses, and income from patent licenses are from King, Toole, and Fuglie (2012), updated with

data from the U.S. Department of Agriculture (2013). SBIR awards are the SBIR/STTR official website, http://www.sbir.gov/.

other industries will depend on the structure

of the consortium, the political and economic

expectations of the sponsors, and the alignment between the research activities of the

consortium and the competitive problems in

the industry.

One of the few examples of a research

consortium in agriculture is the Genetic

Enhancement of Maize project. This consortium was formed in 1994 to increase genetic

diversity in commercial maize hybrids, and by

2010 had more than sixty members, including the USDA, several state agricultural

experiment stations, U.S. and foreign seed

companies, and foreign public research institutions. The U.S. government has provided

approximately $500,000 annually for the consortium, whereas member companies have

contributed in-house resources of roughly

matching value (Pollock 2003). The public

institutions develop exotic germplasm with

valued production or postharvest characteristics and share these with the private

companies. The private companies then

cross this material with their own elite inbred lines and share the crosses with other

members of the consortium. This provides

adapted material for use in commercial

breeding while at the same time protecting

the intellectual property of the companies’

in-bred elite lines (because it is virtually

impossible to back out the in-bred parent

from a cross). This arrangement has helped

overcome the lack of incentives faced by

individual companies to do high-risk and

long-term research on germplasm enhancement (Knudson 2000), which would likely

fall in Pasteur’s Quadrant. Using the crosses

with elite in-bred lines assures that the materials released by the consortium can move

quickly into commercial varieties (Pollock

2003).

Collaborative Public–Private Research

and Technology Transfer at the USDA

The USDA has had a long and unique history

of collaboration with private agricultural

industries, in part because public agricultural

research is often more applied in nature

than research conducted by other federal

agencies (Fuglie et al. 1996). The USDA has

transferred many technologies to the private

sector and maintains close ties to farmers

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
18 Amer. J. Agr. Econ.

and suppliers of agricultural technologies.

Yet the new mechanisms for public–private

collaboration in research have had a significant impact at the agency. The USDA has

significantly increased collaborative research

and technology transfer with private industry

since the 1980s.

In 2012, the Agricultural Research Service (ARS), the USDA’s primary in-house

research agency, was participating in 257

active CRADAs and had 384 active patents

licensed to private firms (figure 8). The private sector has played a substantial role in

the technology transfer process. Financial

data from 366 CRADAs entered into by

the ARS between 1986 and 1995 show that

64% of CRADA resources come from collaborators and 36% come from the USDA

(Day-Rubenstein and Fuglie 2000). Patent

licenses have brought in relatively small

revenues from royalties (approximately $3

million annually in the late 2000s compared

with ARS’s total annual research budget

of approximately $1.1 billion). Rather than

being used for raising revenue, ARS uses

patenting and licensing primarily as a means

of technology transfer for cases in which a

technology requires additional development

by a private-sector partner to produce a commercial product. The license may provide

exclusive rights to market products developed from the patented technology as a way

of reducing commercial risk to the company

(Heisey et al. 2006).

The size of the USDA’s SBIR program

is tied to congressional appropriations for

extramural research, which is managed by

the agency’s National Institute for Food and

Agriculture (NIFA). In 2012, NIFA awarded

eighty-eight SBIR grants totaling $16.8 million, approximately 2.5% of the USDA’s total

extramural research expenditure.

Federal regulatory guidelines governing

the new technology transfer mechanisms

leave government agencies considerable

discretion to formulate policies for collaborating with the private sector. As technology

transfer activities have increased, the USDA

has instituted a number of administrative

procedures to try to ensure that CRADAs,

patent licensing, and other collaborative

efforts achieve USDA policy objectives.

These guidelines, which govern the selection

of private-sector collaborators and sharing of

research costs and benefits, aim to assure that

all parties fulfill their commitments.

Conclusions

The private sector has played an important

role in the U.S. agricultural research and

innovation system since its inception, but the

volume and impact of private research has

accelerated in the past three decades with the

application of biotechnology to crops. Until

1980, most private, agriculturally oriented

research focused on providing improved

machinery and chemical inputs to farmers,

but by the first decade of the twenty-first

century, private crop seed/biotechnology

R&D formed the largest component of private agricultural research. At the same time,

changes in federal science policy enabled

new institutional relationships between public and private research performers, such as

patent licensing, cooperative R&D agreements, small business innovation grants,

and public–private research consortia.

Increased incentives for and capacity in

private research changed the allocation

of public-sector research and created new

opportunities for public-private research

collaboration.

Conceptually, these changes in incentives and structures for research closed gaps

between social and private returns to some

research endeavors, making some research

more suitable for the private sector to fund

and perform. It also created opportunities

to more closely link science-oriented basic

research in the public sector with applied

research and technology development in the

private sector. Synergies between science

and technology created incentives for both

sectors to engage in closer collaboration. But

without dynamic response from public and

private research institutions and clear delineation of the appropriate division of research

effort between sectors, these changes could

lead to crowding out of private research by

the public sector or unrealized social benefits

from public R&D investments because of

insufficient commercialization efforts.

Several studies have examined the

crowding-out hypothesis in public–private

agricultural R&D. One approach has been

to compare the basic applied or commodity

area R&D allocations between the public

and private sectors to see whether these are

consistent with a priori beliefs about where

the largest spillover gaps exist. Even though

the distributions analyzed are broadly consistent with prior expectations and can be

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 19

interpreted as facilitating complementarity,

this research approach does not rule out

other possibilities that may explain observed

R&D allocations. A second approach applies

econometric methods to time series and/or

cross-sectional data at various levels of

aggregation. Seven studies using U.S. and

Chinese data found evidence supporting

complementarity between public and private agricultural research, particularly for

public investments in basic agricultural sciences. Two other published studies found

evidence of crowding out between public

and private agricultural R&D. One of these

used country-level data on European Union

members and the other used researcher-level

data for U.S. academic bioscientists.

Although seven of nine regression studies find that public agricultural research

complements private agricultural R&D,

achieving a deeper understanding of these

inter-relationships is critical going forward.

The current body of work is too small and

varied to reach credible conclusions. Outside

of agriculture, a number of sophisticated

microeconomic studies have emerged in the

broader economics and business literatures

that use quasi-experimental methods to

address problems of endogeneity of public

R&D. Empirical approaches such as nonparametric matching, difference-in-difference,

instrumental variables, and selection models

offer potential for improving the agricultural

literature (see, e.g., Czarnitzki, Ebersberger,

and Fier 2007). There are also opportunities

for theoretical work using structural models to clarify the mechanisms that lead to

complementarity (Takalo, Tanayama, and

Toivanen 2013).

Direct public–private partnerships that

involve active research collaboration, such

as CRADAs and research consortia, are

a growing component of the technology

transfer portfolios of the USDA and other

federal agencies. Such arrangements are

expected to fuel innovation by fostering

greater interaction among participants, limiting the duplication of research efforts, and

selecting the most important research topics. At this time, very little is known about

these potential impacts, particularly for agriculture. Future empirical work could apply

a “treatment–control” empirical approach

using the same methodological approaches

mentioned herein as long as data on participant and nonparticipant firms can be

collected.

In December 2012, the President’s Council of Advisors on Science and Technology

identified seven grand challenges facing the

nation’s agricultural research enterprise.

Meeting these challenges, which include

wide-ranging objectives related to food production, the environment, energy, and health,

will require new policies and strategies that

depend on interactions and interdependencies between public and private R&D

funders and performers. In an era of stagnant public funding for agricultural research,

USDA and other public agencies may be able

to increase the return to public investments

by leveraging knowledge and resources

through private-sector collaboration.

References

Aldrich, H. E., and T. Sasaki. 1995. R&D

Consortia in the United States and

Japan. Research Policy 24: 301–16.

Alfranca, O., and W. E. Huffman. 2001.

Impact of Institutions and Public

Research on Private Agricultural

Research. Agricultural Economics 25:

191–98.

Alston, J. M., M. A. Andersen, J. S. James, and

P. G. Pardey. 2010. Persistence Pays: U.S.

Agricultural Productivity Growth and

the Benefits from Public R&D Spending.

New York: Springer.

Archibald R. B., and D. H. Finifter. 2003.

Evaluating the NASA Small Business

Innovation Research Program: Preliminary Evidence of a Trade-off Between

Commercialization and Basic Research.

Research Policy 32: 605–19.

Audretsch, D. B. 2003. Standing on the Shoulders of Midgets: The U.S. Small Business

Innovation Research Program (SBIR).

Small Business Economics 20: 129–35.

Audretsch D. B., A. N. Link, and J. T. Scott.

2002. Public/Private Technology Partnerships: Evaluating SBIR Supported

Research. Research Policy 31: 145–58.

Bientema, N., G. J. Stads, K. O. Fuglie, and P.

W. Heisey. 2012. ASTI Global Assessment

of Agricultural R&D Spending. Washington DC: International Food Policy

Research Institute.

Buccola, S., D. Ervin, and H. Yang. 2009.

Research Choice and Finance in University Bioscience. Southern Economic

Journal 75: 1238–55.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
20 Amer. J. Agr. Econ.

Cohen, L. R., and R. G. Noll. 1995. Feasibility

of Effective Public–Private R&D Collaboration: The Case of Cooperative R&D

Agreements. International Journal of the

Economics of Business 2: 223–40.

Czarnitzki, D., B. Ebersberger, and A. Fier.

2007. The Relationship between R&D

Collaboration, Subsidies and R&D Performance: Empirical Evidence from

Finland and Germany. Journal of Applied

Econometrics 22: 1347–66.

David, P. A., B. H. Hall, and A. A. Toole.

2000. Is Public R&D a Complement or

Substitute for Private R&D? A Review

of the Econometric Evidence. Research

Policy 29: 497–529.

Day-Rubenstein, K., and K. O. Fuglie. 2000.

The CRADA Model for Public–Private

Collaboration in Agricultural Research.

In Public-Private Collaboration in Agricultural Research, ed. K. Fuglie and D.

Schimmelpfennig, 155–174. Ames: Iowa

State University Press.

Economic Research Service. Agricultural

Productivity in the U.S. Data Product.

Washington DC: U.S. Department of

Agriculture.

Frey, K. J. 2000. A National Strategy for Plant

Breeding in the United States. In PublicPrivate Collaboration in Agricultural

Research, ed. K. Fuglie and D. Schimmelpfennig, 77–98. Ames: Iowa State

University Press.

Fuglie, K. O., N. Ballenger, K. Day, C. Klotz,

M. Ollinger, J. Reilly, U. Vasavada, and

J. Yee. 1996. Agricultural Research and

Development: Public and Private Investments under Alternative Markets and

Institutions. Agricultural Economics

Report 735. Washington DC: Economic

Research Service, U.S. Department of

Agriculture.

Fuglie, K. O., P. W. Heisey, J. L. King,

C. E. Pray, K. Day-Rubenstein, D.

Schimmelpfennig, S. L. Wang, and R.

Karmarkar-Deshmukh. 2011. Research

Investments and Market Structure in

the Food Processing, Agriculture Input

and Biofuel Industries Worldwide. Economic Research Report 130. Washington

DC: Economic Research Service, U.S.

Department of Agriculture.

Fuglie, K. O., P. W. Heisey, J. L. King, C. E.

Pray, and D. Schimmelpfennig. 2012.

The Contribution of Private Industry

to Agricultural Innovation. Science 338:

1031–2.

Fuglie, K. O., and T. S. Walker. 2001.

Economic Incentives and Resource

Allocation in U.S. Public and Private

Plant Breeding. Journal of Agricultural and Applied Economics 33:

459–73.

Glenna, L., R. Welsh, D. Ervin, W. Lacy,

and D. Biscotti. 2011. Commercial

Science, Scientists’ Values, and University Biotechnology Research Agendas.

Research Policy 40: 957–68.

Grindley, P., D. C. Mowery, and B. Silverman.

1994. SEMATECH and Collaborative

Research: Lessons in the Design of

High-Technology Consortia. Journal

of Policy Analysis and Management 13:

723–58.

Government Accounting Office. 2003. Technology Transfer: NIH–Private Sector

Partnership in the Development of

Taxol. Washington DC: Government

Accounting Office.

Hayami, Y., and V. W. Ruttan. 1985. Agricultural Development: An International

Perspective. Baltimore: Johns Hopkins

University Press.

Heisey, P. W., J. L. King, K. Day-Rubenstein,

and R. Shoemaker. 2006. Government

Patenting and Technology Transfer. Economic Research Report 16. Washington

DC: Economic Research Service, U.S.

Department of Agriculture.

Hu, R., Q. Liang, C. Pray, J. Huang, and Y.

Jin. 2011. Privatization, Public R&D

Policy, and Private R&D Investment in

China’s Agriculture. Journal of Agricultural and Resource Economics 36:

416–32.

Huffman, W. E., and R. E. Evenson. 2006.

Science for Agriculture: A Long-Term

Perspective. 2nd Edition. Ames, Iowa:

Blackwell Publishing.

Hughes, M. E., S. V. Howieson, G. Walejko,

N. Gupta, S. Jonas, A. T. Brenner, D.

Holmes, E, Shyu, and S. Shipp. 2011.

Technology Transfer and Commercialization Landscape of the Federal

Laboratories. IDA Paper NS P-4728.

Washington DC: Science and Technology

Policy Institute.

Jaffe, A. B. 1998. The Importance of

“Spillovers” in the Policy Mission of the

Advance Technology Program. Journal of

Technology Transfer 23: 11–19.

Katz, M. L., and J. A. Ordover. 1990. R and

D Cooperation and Competition. In

Brookings Papers on Economic Activity,

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
Fuglie and Toole Public–Private Agricultural Research 21

Microeconomics, 137–203. Washington

DC: Brookings Institution Press.

Kenney, M., and D. Patton. 2009. Reconsidering the Bayh–Dole Act and the Current

University Invention Ownership Model.

Research Policy 38: 1407–22.

King, J. L., A. A. Toole, and K. O. Fuglie.

2012. The Complementary Roles of the

Public and Private Sectors in U.S. Agricultural Research and Development.

Economic Brief No. 19. Washington

DC: Economic Research Service, U.S.

Department of Agriculture.

Knudson, M. 2000. The Research Consortia

Model for Agricultural Research. In Public–Private Collaboration in Agricultural

Research, ed. K. Fuglie and D. Schimmelpfennig, 175–198. Ames: Iowa State

University Press.

Lerner, J. 1999. The Government as Venture

Capitalist: The Long-run Impact of the

SBIR Program. Journal of Business 72:

285–318.

Link, A. N., D. J. Teece, and W. F. Finan. 1996.

Estimating the Benefits from Collaboration: The Case of SEMATECH. Review

of Industrial Organization 11: 737–51.

Mowery, D. C., R. R. Nelson, B. N. Sampat,

and A. A. Ziedonis. 2001. The Growth

of Patenting and Licensing by U.S. Universities: An Assessment of the Effects

of the Bayh–Dole Act of 1980. Research

Policy 30: 99–119.

Narrod, C. A., and K. O. Fuglie. 2000. Private

Investment in Livestock Breeding with

Implications for Public Research Policy.

Agribusiness 16: 457–70.

National Institute of Food and Agriculture. 2010. Funding Summary 2008.

Current Research Information System.

Washington DC: U.S. Department of

Agriculture.

National Institute of Standards and Technology. 2012. Federal Laboratory Technology

Transfer Fiscal Year 2010: Summary

Report to the President and the Congress.

Washington DC: U.S. Department of

Commerce.

National Institutes of Health. 2003. National

Survey to Evaluate the NIH SBIR Program. Washington DC: Department of

Health and Human Services.

National Research Council. 2010. The Impact

of Genetically Engineered Crops on

Farm Sustainability in the United States.

Washington DC: National Academies

Press.

Pray, C. E., and K. O. Fuglie. 2002. Private

Investment in Agricultural Research and

International Technology Transfer in

Asia. Bogor, Indonesia: International

Potato Center, Rutgers University, and

Economic Research Service.

President’s Council of Advisors on Science

and Technology. 2012. Report to the President on Agricultural Preparedness and

the Agricultural Research Enterprise.

Washington DC: Executive Office of the

President.

Pollock, L.M. 2003. The History and Success of the Public–Private Project

Germplasm Enhancement of Maize

(GEM). Advances in Agronomy 78:

45–87.

Roos, D., F. Field, and J. Neely. 1998. Industry

Consortia. In Investing in Innovation,

ed. L. Branscomb and J. Keller, 400–21.

Cambridge, MA: MIT Press.

Ruttan, V. W. 2001. Technology, Growth

and Development: An Induced Innovation Perspective. New York: Oxford

University Press.

Sakakibara, M. 1997. Evaluating

Government-Sponsored R&D Consortia in Japan: Who Benefits and How?

Research Policy 26: 447–73.

Schacht, W. H. 2012. Industrial Competitiveness and Technological Advancement:

Debate over Government Policy. CRS

Report for Congress 7-5700. Washington

DC: Congressional Research Service.

Shoemaker, R., J. Harwood, K. DayRubenstein, T. Dunahay, P.W. Heisey,

L. Hoffman, C. Klotz-Ingram, W. Lin, L.

Mitchell, M. McBride, and J. FernandezCornejo. 2001. Economic Issues in

Agricultural Biotechnology. Agricultural

Information Bulletin 762. Washington

DC: Economic Research Service, U.S.

Department of Agriculture.

Sperling, D. 2001. Public–Private Technology R&D Partnerships: Lessons from

the U.S. Partnership for a New Generation of Vehicles. Transport Policy 8:

247–56.

Stiglitz, J., and S. J. Wallsten. 2000. Public–

Private Technology Partnerships:

Promises and Pitfalls. In Public-Private

Policy Partnerships, ed. P. Rosenau.

37–58. Cambridge, MA: MIT Press.

Stokes, D. E. 1997. Pasteur’s Quadrant—Basic

Science and Technological Innovation.

Washington DC: Brookings Institution

Press.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from 
22 Amer. J. Agr. Econ.

Takalo, T., T. Tanayama, and O. Toivanen.

2013. Market Failures and Additionality Effects of Public Support to

Private R&D: Theory and Empirical

Implications, International Journal of

Industrial Organization http://dx.doi.org/

10.1016/j.ijindorg.2013.02.002.

Thornberry, J. B. 2002. Competition and

Cooperation: A Comparative Analysis of SEMATECH and the VLSI

Research Project. Enterprise & Society 3:

657–86.

Tokgoz, S. 2006. Private Agricultural R&D in

the United States. Journal of Agricultural

and Resource Economics 31: 212–38.

Tokgoz, S., and K. O. Fuglie. 2013. Public

Policy, Induced Innovation, and Private Research: The Case of Agriculture.

Poster presented at the Agricultural and

Applied Economics Annual Conference,

Washington DC.

Toole, A. A. 2007. Does Public Scientific

Research Complement Private Investment in Research and Development in

the Pharmaceutical Industry? Journal of

Law & Economics 50: 81–104.

Toole, A. A., and D. Czarnitzki. 2007.

Biomedical Academic Entrepreneurship through the SBIR Program. Journal

of Economic Behavior & Organization

63: 716–38.

Toole, A. A., and J. L. King. 2011. Industry–

Science Connections in Agriculture:

Do Public Science Collaborations

and Knowledge Flows Contribution

to Firm-Level Agricultural Research

Productivity? Discussion Paper No. 11-

064, Centre for European Economic

Research (ZEW).

Toole, A. A., and C. Turvey. 2009. How Does

Initial Public Financing Influence Private

Incentives for Follow-on Investment in

Early-Stage Technologies? Journal of

Technology Transfer 34: 43–58.

U.S. Department of Agriculture. 2013.

Annual Report on Technology Transfer

FY2012. Washington DC: USDA.

Wallsten, S. J. 2000. The Effects of

Government–Industry R&D Programs

on Private R&D: The Case of the Small

Business Innovation Research Program.

RAND Journal of Economics 31: 82–100.

Wang, C., Y. Xia, and S. Buccola. 2009. Public

Investment and Industry Incentives in

Life-Science Research. American Journal

of Agricultural Economics 91: 374–88.

Wang, S. L., P. W. Heisey, W. Huffman, and

K. O. Fuglie. 2013. Public R&D, Private

R&D, and U.S. Agricultural Productivity Growth: Dynamic and Long-run

Relationships. American Journal of

Agricultural Economics 95: 1287–93.

 at DigiTop USDA's Digital Desktop Library on January 22, 2014 http://ajae.oxfordjournals.org/ Downloaded from