Building the Knowledge Stock: Lags, Depreciation and Uncertainty in Agricultural R&D

The search for an appropriate methodology to analyse the relation between R&D investments and the knowledge stock is the main purpose of the paper. The high estimates of internal rates of return on agricultural R&D reported in the literature suggest that there are major empirical problems with the traditional attribution of productivity growth to R&D investments. We model a stochastic gestation lag of research investment and a geometric depreciation of the knowledge stock. This model of knowledge accumulation from R&D investments outlines the basic parameters underlying the investment lag structure. According to the different types of research project, the approach is applied to public R&D expenditure in Italian agriculture in order to ascertain the empirical consequences and potential of the model.