We use newly constructed state-specific data to explore the implications of common modeling choices for measures of research returns. Our results indicate that state-to-state spillover effects are important, that the R&D lag is longer than many studies have allowed, and that misspecification can give rise to significant biases. Across states, the average of the own-state benefit-cost ratios is 21:1; or 32:1 when the spillover benefits to other states are included. These ratios correspond to real internal rates of return of 9 or 10 percent per annum, much smaller than those typically reported in the literature, partly because we have corrected for a methodological flaw in computing rates of return.

Agricultural research has transformed agriculture and in doing so contributed to the transformation of economies. Economic issues arise because agricultural research is subject to various market fail ures, because the resulting innovations and technological changes have important economic consequences for net income and its distri bution, and because the consequences are difficult to discern and attribute. Economists have developed models and measures of the economic consequences of agricultural R&D and related policies in contributions that relate to a very broad literature ranging across production economics, development economics, industrial organiza tion, economic history, welfare economics, political economy, econo metrics, and so on. A key general finding is that the social rate of return to investments in agricultural R&D has been generally high. Specific findings differ depending on methods and modeling assump tions, particularly assumptions concerning the research lag distribu tion, the nature of the research-induced technological change, and the nature of the markets for the affected commodities.

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In this article, we examine the relationship between public investments in agricultural research and development and the productivity‐enhancing benefits they generate. Knowledge productivity functions are estimated for U.S. agriculture using data on multifactor productivity and public knowledge stocks. We examine the time‐series properties of the data and compare alternative econometric estimation procedures. The results are used to calculate economic performance measures such as internal rates of return and benefit‐cost ratios. The real rate of return to public investments in agricultural research and development in the United States is in the range of 8–10% per annum.