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The United States has developed a very successful R&D system for agriculture. It is a system with shared cost/financing and performance by the federal and state governments and by the private sector. The paper presents an economic analysis of alternative organization, management, incentive, and funding mechanisms for agricultural research under budget constraints, including some emphasis on thekinds of benefits thatare generated and thegroups that receive them. We conclude that the private sector should bepermitted to carry outresearch that it finds profitable to undertake withminimal competition firom the public sector. The public research institutions should focus on general and pretechnology science programs that complement private R&D activities and conduct applied research in areas where innovations are socially beneficial but notprivately profitable. The mechanism for channeling public funds to researchers, e.g., formula, competitive grants, or ear-marks can be expected to affect the types of benefits/impacts of agricultural research conducted and the efficiency of the research activity. Themanagement of research is difficult because of the large amount of uncertainty associated with innovations and contracting problems.

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This report is published in Review of Agricultural Economics, Vol. 21, No. 1 (1999): pp. 2-18