Research payoffs from quality improvement : the case of backfat depth in pigs

Closed-market models embodying alternative specifications of supply, demand and substitutability conditions are developed to measure the economic benefits from a research-caused improvement in quality. The models are applied to the estimation of the economic benefits from reducing backfat depth in Australian pork. A major finding is that the Australian pig industry has the potential to derive a gross research benefit of about $7 million per annum from a 10% reduction in backfat thickness in pigs. Under each of the chosen specifications, the larger share of this gain accrues to pig producers. There could be additional social gains as a result of health benefits not incorporated in consumers' valuations.