Abstract

United States dairy policy includes both predatory and productive components. The milk price support program is designed to transfer income to dairy farmers while research and extension expenditures are designed to increase social welfare. The purpose of this chapter is to provide an empirical example of the theory developed in the previous chapter. It has long been recognized the government research and extension policies have been significant contributors to technological advance in agriculture (Evenson and Kislev 1976, Evenson, Waggoner, and Ruttan 1979). The advent of technological change on agriculture and its policy implications was first noted by Schultz (1945, 1953). Some, like Cochrane (1958) in characterizing his famous technological treadmill thesis, argued for price supports in order to compensate farmers for the adverse effects of research on farmers' welfare. Indeed, commentators like Thurow (1981) and Schlesinger (1984) argue that public good provision in agriculture is one of the few major economic success stories of government intervention in the history of the United States. Nevertheless, one of the most stylized facts in government policy intervention in agriculture is the pervasive level and overwhelming evidence of underinvestment in public research (Ruttan 1982). Concomitant to this notion, economists have alleged that governments 'overinvest' in commodity policies because of the associated deadweight losses generated.