The Dual Approach to Research Evaluation:A Simplified Empirical Illustration

In this paper, the dual approach to ex ante research evaluation in a multiple-input, multiple-output industry is explained and demonstrated. A simplified, illustrative model is developed based on a number of fundamental characteristics of the Australian wool industry and output-augmenting technical change. A normalised quadratic restricted profit function of Australian wool production is specified in terms of effective rather than actual prices. The estimated short-run supply elasticities are quite inelastic. The results of the simplified model show that the development and adoption of a 10 per cent yield-increasing wool technology would result in a 19.6 per cent fall in the actual price of wool and a 9.8 per cent increase in the actual quantity of wool produced. The cross-commodity effects of the technology are also allowed for in the model, with actual livestock production falling by 0.6 per cent, actual labour usage increasing by 0.3 per cent and actual crop production increasing by 1.3 per cent. Overall, in the short-run, the introduction of the specified wool yield-increasing technology results in a 17.1 per cent decrease in wool producer profits.