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Impact Assessment of Technology: Economic Surplus Approach Praduman Kumar Hon. Professor, IARI [email protected]

ICAR-IFPRI: Measurement of Economic Surplus : P Kumar

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Impact Assessment of

Technology: Economic

Surplus Approach

Praduman Kumar

Hon. Professor, IARI

[email protected]

Impact assessment indicators

• Efficiency

• Food security

• Sustainability

• Employment generation

• Institutional capacity

Impact of technology is assessed

at:

• Farm level

• Regional level

• National level

• Global level

Impact indicators at farm level

– Increase in average yield

- Increase in net income

– Decline in unit cost of production

– Enhance employment and labor productivity

– Price premium due to quality

– Increase of improved seed demand

– Household food & nutritional security

– Gender related issues

Regional level indicators

• Food production

• Sustainability of natural resources

• Food security

• Employment issues

• Equity issues

• Poverty

• Trade

• Inter- sectoral linkages

National level indicators

• Production

• Prices

• Trade

– Export

– Import

• Spill-over effect

• Sustainability of natural resources

Type of benefits

• Tangible benefits

• Intangible benefits

• Spillover benefits

Research Process

• When research started on new technology

• When the final product identified at

research station

• When the product was released on FLD

• When the seed production stared for large

scale adoption

• R& D gap period

• Adoption rate

Adoption Process

– When first adopted

– Extent of adoption pattern

– Adoption ceiling

Tracking adoption

• Breeder’s seed production

• Sale of improved seed.

• Farm level survey

Estimation

Adoption

(%)

Year

(A) Adoption Pattern

Economic surplus approach

• ESM is widely used for evaluating the

impact of technology on the economic

welfare of households

• The model can be applied to the

small/large open/closed economy within

the target domain of production

environment

0 Q0 Q1

Surplus distribution in the basic model of research benefits

Source : Alston, Norton and Pardey, p209

PriceS0

S1

b

a

cd

P0

P1

I0

I1

Quantity

Change in Consumer surplus

(CS = area P0 ab P1)

e

Change in Producer surplus

(PS = area P1 b I1 - area P0 a I0)

D

Estimation of Benefits

0 0 1 0.5CS PQ Z Z

0 0 1 0.5PS PQ K Z Z

0 0 1 0.5TS CS PS PQ K Z

whereK is the vertical shift of supply function expressed as a proportion

of the initial price,

is the absolute value of the elasticity of demand

Z = Ke / (e + ) is the reduction in price, relative to its initial (i.e.,

pre-research) value, due to the supply shift.

e is the elasticity of supply.

Closed-economy model

Estimation of benefits from Improved technology

Benefits = K * P * Q * (1+0.5 Z * PED)

P is output price, Q is production, PED is price elasticity of demand & PES is price elasticity of supply

K is supply shift due to Improved technology

Z is change in price due to Improved technoloy

• Reduction in marginal cost = Change in yield / PES

• Reduction in unit cost = Change in cost of inputs per ha / (1+change in yield)

• Net cost change = Reduction in marginal cost – Reduction in unit cost

• K = Net cost change * Probability of success in research * adoption rate * depreciation rate of technology

• Z = K x PES / (PES+PED)

Base line information

• Target domain

• Base year area, yield, production and price

• Research and development lag in years

• Adoption and ceiling levels of improved tech

• Depreciation rate of improved technology

• Probability of success of research

• Own price elasticity of supply and demand

• Life of the project

• Investment on research

Supply and Demand Elasticities

• Crop Demand Supply

• Wheat -0.19 0.54

• Rice -0.23 0.33

• Chickpea -0.69 0.11

• Pigenpea -0.69 0.11

• Mustard -0.55 0.19

• Jowar -0.24 0.20

Cost and Benefits Stream

– Stream of cost

• Research

• Extension

– Stream of benefits

• With and without improved technology

• Before and after improved technology

(B) Expected flow of cost and benefits

Cost

Benefits

Year

Analysis for impact assessment of

improved carp strains

• Benefit-cost ratio– Ratio of present worth of benefit stream and

the present worth of cost stream

• Net present value– Present worth of the incremental net benefit

stream

• Internal rate of return

– Discount rate where net present worth of

benefit and costs equal to zero

• Pay back period

Discounting benefits and cost

n

t

t

i

CostBenefitsNPV

1 )1(

)(t

Internal Rate of Return

n

t

tt

i

CBIRR

1 )1( t0

• Questions for the Project leaders.doc

Source of information

• Research investment to be obtained from various research station (by considering the salary of researchers, operational expenses and overhead costs of research institutions).

• Information on adoption rate, spread of adoption, ceiling levels, yield gain, cost savings and price premium.

• The data can be derived from the field survey and discussion with the research manager, extension group, scientists and traders.

• Supply and demand elasticity's of commodity can be taken from published literature.

• Help Line for data understanding.doc

Impact _Gudiline _example.doc

• Small economy Economic Surplus.XLS

• Large economy Economic Surplus.XLS

Economic Surplus

(BT_Bringel_NCAP_Sankt

Kumar).xls

• Impact Assessment of Jayanti Rohu in

India.XLS

• Impact of Jayanti Rohu.XLS

• final ivlp impact natp.xls

Output of IVLP Project

Total villages

Total farmers

No. of tech. inter.

No. of tech. assessed

No of tech. Refined

2000 2001 2002

3 3 3

1000 1000 1000

23 21 21

21 21 21

21 21 21

Twenty usable technological

interventions identified:

Socio-economic Impact of

IVLP

With NATP

cost

With NATP &

IARI Cost

Annual cost

(Rs.)0.47 million 1.97million

NPV Rs. 36 million Rs. 30 million

BCR 16.5 4.6

IRR 82 35

Late Blight Resistant Potato in

India• Yield gain 25%

• Price gain 20%

• Cost/ha +6.32

• R&D 9 years

• Prob of success 0.90

• Adoption 45% in 5years

• R&D cost 14.25 million rupees

• Area under potato 1.28 million hec

• Yield control 13.79 t/ha

• Price Rs 9180/tone, PES 0.4 PES =-0.3

Conclusions

•A number of promising technologies have been

refined/developed.

•Economic benefits presented for few projects

had shown that the rate of return from

investment in research under NATP are high.

•Provided policy guidance to research system

Limitation

•Close economy framework with

no spillover effects

•Data on production cost is week

•Analysis does not consider

research stock and its costs as

well extension cost

•Results are sensitive to demand

and supply elasticity

• FINAL PAPER IMPACT NATP_pk.doc

Late Blight Resistant Potato in

India• Yield gain 25%

• Price gain 20%

• Cost/ha +6.32

• R&D 9 years

• Prob of success 0.90

• Adoption 45% in 5years

• R&D cost 14.25 million rupees

• Area under potato 1.28 million hec

• Yield control 13.79 t/ha

• Price Rs 9180/tone, PES 0.4 PES =-0.3

Readings ofTFP & Impact

studies.doc