The calculation of research benefits with linear and non-linear specification of the demand and supply functions

This paper provides a comparison of research benefits for linear and nonlinear constant elasticity (NLCE) specifications of supply and demand with a pivotal supply shift framework. The comparison allows for a sensitivity test of results to different values for demand and supply elasticity. The main finding is that the values of the gross annual research benefits calculated for the NLCE specification are larger than those calculated for the linear specification with price-elastic supply but are smaller with price-inelastic supply. The analysis suggests that the use of an NLCE specification and a pivotal shift due to research is usually preferable to use of a linear supply curve with pivotal shift.