Agricultural research is undergoing a paradigm shift. The driving forces behind this shift include the emergence of the agricultural life-sciences industry; the legal precedent of Diamond v. Chakrabarty, allowing patents to be taken out on living tissue; and the Bayh-Dole Act, which allows and encourages universities to patent and commercialize academic intellectual property. In this paradigm shift, the nature of and relationships between public and private agricultural research are changing quickly and dramatically. Many universities are utilizing the Bayh-Dole Act to work with small and medium university-related firms (SMURFs), that often include faculty members who have made an innovation. To critics, this response simply makes public institutions look increasingly similar to private firms. This raises the question: is agricultural research still be a public good?
This paper is a critical first step in understanding how increasingly private ownership of intellectual property affects the agribusiness environment and the evolving role of public agricultural research institutions.
The innovative step in this paper is the development of a formal economic model which represents the role of applied biotech research in the agricultural life sciences. The model is built around neo-Schumpeterian ideas of endogenous innovation and growth. The defining characteristics of the neo-Schumpeterian approach are that R&D is inherently a risky investment, that products are made obsolete and replaced by the next generation of higher-quality products, that successful researchers obtain some degree of monopoly power and rents from their discovery of the next generation of products, and that the lure of monopoly profits draws firms into the R&D process (Dinopoulos, 1994). Each of these assumptions accurately represents a part of the life-science industry. A key component of the model–heterogeneous R&D firms–is driven by the empirical observation that the agricultural life-science industry contains large, multinational corporation such as Monsanto and Novartis, as well as small and medium university-related firms (SMURFs), usually organized following the Bayh-Dole Act. The model endogenously determines R&D industry structure, levels of R&D expenditures, rates of innovation, and growth as outcomes of the firms’ investment decisions.
Although the model is complex, it is rich in detail and implications about industry structure and about the role of the public sector. The most salient implications for the role of the public sector are:
- The private sector underinvests in applied R&D activity.
- Concentration in the large-firm, life-science R&D industry increases over time.
- The life-science revolution is reducing the number of markets, in the short run. This reduction in the number of niche markets diminishes the role of the public sector.
- There is a role for the public sector in conducting R&D in niche markets.
- In the long run, the life-science revolution may also create new niche markets.