using prize rewards to stimulate innovation and adoption in african agriculture william a. masters...
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Using Prize Rewards to Stimulate Innovation and
Adoption in African Agriculture
William A. MastersProfessor of Agricultural Economics
Purdue University
wmasters@purdue.edu
www.agecon.purdue.edu/staff/masterswww.agecon.purdue.edu/prizes
www.fara-africa.org
Prize rewards: the story ahead
•African agriculture needs new innovation incentives •We propose a new system of “prize rewards”:
– a fixed sum, paid proportionally to measured value, – to reward innovators for value they create but cannot capture– to recognize successful approaches and attract other funding
•These slides detail our motivation and proposal– published in 3 refereed journal articles– discussed at >17 conferences and workshops– funded so far by Adelson Family Foundation and IFPRI– supported by 8-member advisory board– endorsed by NEPAD, for implementation through FARA
Average cereal yields by region, 1961-2004
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Ave
rag
e ce
real
yie
lds
(mt/
ha)
RestWorldE&SEAsiaSouthAsiaSSAfrica
The problem: Africa’s ag technology is far behind
Source: calculated from FAO data, at http://faostat.fao.org.
There are diminishing returns to inputs, e.g. simply adding more fertilizer
Fertilizer Use (N+P+K), 1961-2002
1
10
100
1000
kg
pe
r h
a o
f a
rab
le l
an
d
.
RestWorldE&SEAsiaSouthAsiaSSAfrica
Source: calculated from FAO data, at http://faostat.fao.org.
Sustaining growth requires new technologies, e.g. new varieties
Adoption of new varieties (pct. of cropped area)
13%
42%
62%
80%
8%
23%
39%52%
12%4%1%
26%
0%10%20%
30%40%50%60%
70%80%90%
1970 1980 1990 1998
Asia
Lat.Am.
SSAfrica
Source: Calculated from data in R.E. Evenson and D. Gollin (2003), Crop Variety Improvement and its Effect on Productivity. Wallingford: CABI.
Africa has had remarkably low public investment in crop improvement
Public agricultural R&D per capita, 1971-2000
0
2
4
6
8
10
12
14
16
18
20
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
Exp
end
iture
pe
r ca
pita
(199
3U
S$)
.
OECD
Sub-Saharan Africa
Note: Sample varies from n=13 to 26 for SSA countries, and n=9 to 15 for OECD countries.Source: Agricultural R&D is from IFPRI (2003), available online at www.asti.cgiar.org; total population is from FAOStat (2004), available online at apps.fao.org.
Private R&D builds onpublic investment
Notes: Calculated from IFPRI (2003), available online at www.asti.cgiar.org. Data refer to various years from 1971 through 2000, and exclude the chemical and machinery sectors.
01
23
45
6P
riva
te R
&D
pe
r C
ap
ita (
19
93
US
$)
0 5 10 15 20 25 30 35Public R&D per Capita (1993 US$)
Netherlands
UK
US
Sweden
NZ
France
R&D has varied but high payoffsin all regions, including Africa
Source: Alston, J.M., M.C. Marra, P.G. Pardey, and TJ Wyatt. 2000. "Research returns redux: A meta-analysis of the returns to agricultural R&D." Australian J. of Ag. and Resource Econ., 44(2): 185-215.
Estimated return to agricultural research and extension (%/year)
Almost all assessments show returns above 10% cost of capital
A few studies document blockbuster discoveries
…but sustaining foreign aid for agricultural R&D has been difficult!
USAID Funding for Research and Extension in Africa, FY1961-2001
0
20
40
60
80
100
Cu
rren
t U
S D
oll
ars
(Mil
lio
ns)
.
Total
Research
Extension
Source: Gary Alex (2003), unpublished file data.
•Agricultural innovation faces a severe market failure–value creation is measurable but dispersed among the poor
–private investment is limited by cost of value capture
–public investment is limited difficulty of predicting success
• Innovation can be accelerated with prize payments– to reward successful innovators
– to recognize successful strategies:
• attract private investment for marketable innovations
• attract public funding to proven approaches
Prize rewards canjump-start innovation
• Prize programs are often needed– Rewards for personal accomplishment are widespread
– Rewards for specific technologies arise as needed:• 1714-1773 British reward for computing longitude at sea• 1802-1809 French reward for food preservation• 1901-1940 Various rewards for civil aviation• 1995-2005 Ansari X-prize for civilian spaceflight
• Technology prizes are a temporary instrument– by revealing what works best, they are replaced by
• private investment when the innovation is marketable• public grants and contracts when it is a public service
Prize initiatives are important but short-lived
• Pre-specifying a traditional prize won’t work– farmers need a changing portfolio of new techniques– success requires location-specific knowledge
• but we can measure value with verifiable data– controlled experiments for output/input change– farm surveys for extent of adoption;– input and output prices
• so donors can reward social value like a market sale– announce funding, eligibility and measurement rules– assist innovators to compile data after adoption– verify data and pay out in proportion to measured gains– visibility of rewards leads others to imitate success
How prize rewards can helpjump-start African agriculture
New technologies often involve multiple innovationsGenetic
improvement
(by researchers, using controlled trials)
Agronomic improvement
(by farmers, using land & labor)
Successful innovationsare often surprising
traditional “flat” planting
labor-intensive“Zai” microcatchments
For these fields, the workers are:
Prize rewards can stimulateany kind of innovation
whose value is measurable
improved fish-drying in Senegal
using hermetic bags to store crops
Implementing Prizes: Schematic overview
Step 1:donors specify
lines of credit for target domains
(e.g. $1 m. for food crops)
Step 3:secretariat verifies data and computes
reward payments(e.g. 1/36th of measured gains)
Step 2:innovators submit
data on gains from new techniques after adoption
(e.g. $36 m. over 7 submissions)
Impact:other donors, investors
and innovatorsimitate successes
Prizes would be a small fraction of total activity,
but a key market-like signal of value
Implementing Prizes: An example using case study data
Example technology
Measured Social Gains
(NPV in US$)
MeasuredSocial Gains (Pct. of total)
RewardPayment
(US$)
1. Cotton in Senegal 14,109,528 39.2% 392,087
2. Cotton in Chad 6,676,421 18.6% 185,530
3. Rice in Sierra Leone 6,564,255 18.2% 182,413
4. Rice in Guinea Bissau 4,399,644 12.2% 122,261
5. “Zai” in Burkina Faso 2,695,489 7.5% 74,904
6. Cowpea storage in Benin 1,308,558 3.6% 36,363
7. Fish processing in Senegal 231,810 0.6% 6,442
Total $35.99 m. 100% $1 m.
Note: With payment of $1 m. for measured gains of about $36 m., the implied royalty rate is approximately 1/36 = 2.78% of measured gains.
Data needed to compute each year’s economic gain from technology adoption
Implementing Prizes: Data requirements
D S S’ S”Price
Quantity
J (output gain)
I(input change)
Q Q’
K(cost reduction)
Variables and data sources
Market dataP,Q National ag. stats.
Field dataJ Yield change×adoption rateI Input change per unit
Economic parametersK Supply elasticity (=1 to omit)ΔQ Demand elasticity (=0 to omit)
ΔQ
P
Data needed to estimate adoption rates across years
Fraction of surveyed domain
Year
First survey
Other survey (if any)
Linear interpolations
First release
Projection (max. 3 yrs.)
Application date
Implementing Prizes: Data requirements
DiscountedValue(US$)
First release
Computation of cumulative economic gains
NPV at application date, given fixed discount rate
Projectionperiod(max. 3 yrs.?)
“Statute of limitations”
(max. 5 yrs.?)
Implementing Prizes: Data requirements
Year
• Refinement and endorsement of the proposal – many meetings, publications and citations since 2003– formal Advisory Board formed October 2004– formal FARA commitment September 2005
• Funding for project development– Adelson Family Foundation (New York), 2004-06– IFPRI (Addis Ababa), 2006-08
• Funding for prize rewards– significant interest from various donors– could be funded directly through FARA
Implementing prizes:What’s done, what’s next
For more information…
wmasters@purdue.edu
www.agecon.purdue.edu/staff/masterswww.agecon.purdue.edu/prizes
www.fara-africa.org
Walter Alhassan (Ghana, former DG of CSIR)Julian Alston (UC Davis)Jock Anderson (World Bank)Alain de Janvry (UC Berkeley)Bruce Gardner (U of Maryland)Anil K. Gupta (Natl. Innovation Found., India)Michael Kremer (Harvard)Jenny Lanjouw (Berkeley)Richard Mkandawire (NEPAD)Oumar Niangado (Syngenta Fndtion)George Norton (Virginia Tech)Rob Paarlberg (Wellesley)Prabhu Pingali (FAO)Per Pinstrup-Andersen (Cornell)Jim Ryan (Australia, former DG of ICRISAT)Eugene Terry (former DG of WARDA)
Other endorsements to date
Simeon Ehui (World Bank)
Robert Evenson (Yale)
Richard Nelson (Columbia)
Phil Pardey (Minnesota)
Carl Pray (Rutgers)
Jeffrey Sachs (Columbia)
Pedro Sanchez (Columbia)
Brian Wright (Berkeley)
David Zilberman (Berkeley)
Advisory Board
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