Basic Principles

There is substantial agreement among economists about the basic principles of priority setting for research. In essence, the main economic idea is that priority setting should move a research system towards "allocative efficiency." The notion of allocative efficiency is that resources should be allocated across research problem areas (RPAs) so that the expected net benefits of research are maximized. A necessary condition of allocative efficiency is that an additional dollar of funding will have approximately the same expected payoff regardless of the particular activity in which it is invested. In other words, the added benefit that we can expect from an increment of $100,000 in research support should be identical whether we allocate the money to plant physiology or to soil science. Moreover, the expected payoff should be the same whether we allocate the money to "upstream" research in basic science or to "downstream" research in agronomy. Note that the expected benefit is the product of:

1. The productivity gain that would be obtained if the research is successful; and

2. The probability that the research program will succeed in solving the problem.

If this condition were not satisfied, there would be the potential to increase expected net benefits by reallocating resources from activities with (relatively) low expected payoffs to those activities with (relatively) higher expected payoffs. It would be efficient for such reallocation to continue until there is no further potential for increasing benefits in this fashion.

How can allocative efficiency be achieved? In many contexts, competitive markets tend to result in the efficient allocation of resources. With public sector research, however, markets offer little guidance for allocating resources.

Instead, research administrators typically rely on a variety of different techniques. Some of these are sensible; others are not.

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