Distribution of Research Gains in Multistage Production Systems: a General Equilibrium Analysis of Wool

The seminal work of Freebairn, Davis and Edwards (FDE, 1982) showed that in a multistage production system, research that reduces production costs at one stage provides benefits to producers at all stages and to consumers. This work assumed a partial equilibrium environment, while producers operate in general equilibrium. We apply a general equilibrium model to investigate the importance of the economic environment in the distribution of research gains in an extreme example of a multistage production system: wool. Our results do not support FDE’s conclusions with regard to the distribution of benefits to producers across production stages – research in a multistage production system that reduces production costs at one stage will not necessarily provide benefits to producers at all stages.