Returns to public investments in agriculture with imperfect downstream competition

A multiple-market framework is developed to measure the size and distribution of research benefits. The model considers an upstream raw product market and a downstream finished product market and allows for imperfect competition in the intermediary food-processing sector. A central conceptual result is derived: an increase in raw product output is a sufficient condition for cost-reducing innovations in the farm sector to increase social welfare. A special case of linear farm supply and isoelastic processing production functions reveals that necessary conditions for welfare to decrease are a convergent farm supply shift, an oligopsonistic upstream market configuration, and increasing returns-to-scale processing technology.