Contents & Foreword, Characterizing And ... - IRRI books

PriceDS 0S 1P 0P 1dS 0S 1acbD0 Q 0Q 1QuantityFig. 1. A framework for measuring producer andconsumer surpluses.increase in supply. The net gain to producers would depend on whether the increasein production compensates for the fall in prices.Yield-enhancement or cost-reduction technology intervention would result in achange in the consumer’s surplus equal to the area P 0 abP 1 . Similarly, the producer’ssurplus would be represented by the area P 1 bS 1 – P 0 aS 0 (approximately P 1 bcd). Thetotal economic surplus would be equal to the area S 0 abS 1 . This economic surplus isadjusted with the expected adoption and probability of success. Economic surplus isestimated for each research program in the rainfed rice production system. This informationis used to assess the net present value (NPV) of each research program asfollows:nNPV = ∑ [(ES * P s * AD i – RC i ]/(1 + r) ii = 1where ES is the economic surplus, P s is the probability of success, AD i is the adoptionof the technology in the ith year, RC i is the research cost in the ith year, r is thediscount rate, and i is the time period.The internal rate of return (IRR) of each project was also computed. To computeNPV and IRR, the following assumptions were made:● Supply and demand elasticities of different commodities were used fromKumar (1997). These are important for understanding the response of farmersand consumers in the event of changing prices and supply.● Adoption of improved technologies as a result of research under the NATPwas considered up to 2020 with technology degeneration at a linear rateafter reaching the ceiling level.The role of characterization in ex ante assessment . . . 295