Answered: Explain why investment in agricultural…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain why investment in agricultural R & D is a case of market failure

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Investment in agricultural R & D is a case of market failure as some of the research is unprofitable when done by private sector due to problem of appropriability that is the investors cannot create sufficient benefits for themselves to securitise the investment. Also, the transaction costs that is involved in having the farmers take a collective action in order to create investments for the research in agriculture are too high for them to invest. In these situations, market fails to provide social optimal condition of R and D. There will be requirement of government interference to provide security to the farmers or the investors.

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