DISCUSSION:ECONOMIES OF SCALE AND SCOPE IN AGRICULTURAL BIOTECHNOLOGY RESEARCH J EREMY D. FOLTZ Evolution in science such as recent develop- ments in agricultural biotechnology creates new challenges for patent regimes, leads to re- forms in laws and regulations, and has led to the creation of property rights where none ex- isted before. The new property rights in agri- culture imply new and complex incentives for research, new avenues of rents for firms and the public sector in agriculture, and new types of strategic behavior in research and product markets between firms as well as between the public and the private sectors. The present exponential growth in agricul- tural biotechnology research in both the pub- lic and private sectors is one of the byprod- ucts of changes in intellectual property rights for living organisms. The literature in agricul- tural economics is just catching up to the agri- cultural biotechnology and intellectual prop- erty rights revolution in agricultural R&D. The seminal studies of the social returns to agri- cultural research and development essentially predated the mid 1990s take off in agricul- tural patenting. Much of the nascent literature on agricultural biotechnology R&D has been theoretical in orientation. These three papers represent part of the efforts underway to up- date that line of work to incorporate the ex- pansion in both public and private research ob- jectives to include patenting and other private sector interactions. Perhaps foremost among the key issues in agricultural biotechnology is the optimal orga- nization of research in an industry dominated by a few private firms (as is the case in the seed industry), devoted to securing intellectual property rights on its research, but at the same time facing an active public sector which also is actively engaged in research and patenting. Jeremy D. Foltz is assistant professor at the University of Wisconsin–Madison in the Department of Agricultural and Applied Economics, and associate director of the Program on Agricultural Technology Studies. This article was presented in a principal paper session at the AAEA annual meeting (Montreal, Quebec, July 2003). This arti- cles in these sessions are not subjected to the journal’s standard refereeing process. The problem of understanding research orga- nization and output is the theme underlying these three papers presented here today. One of the key sub-issues for understand- ing industry and research organization in agri- culture that is brought forth in the work by Schimmelpfennig, King, and Naseem and the work by Xia is the synergies that may or may not exist between multiple research outputs (i.e., basic research and applied research or product development) as well as between dif- ferent types of research organizations, such as those dedicated to basic research (e.g., univer- sities) and those working on product develop- ment (e.g., firms). This issue which can be in- vestigated across firms as in Schimmelpfennig, King, and Naseem or between the public and private sectors as in Xia has elicited much work in the economics literature but has only re- cently become important in agriculture. A second key issue in understanding the agricultural biotechnology research process which underlies the analysis of all three works is the difficulty of observing or inferring re- search effort from research outcomes. The eco- nomics of R&D are complicated within the firm by scientists’ effort being difficult to ob- serve and quantify and the seeming random- ness of breakthroughs and patentable ideas. As has been amply pointed out elsewhere this makes the game played between a research unit and a research manager or investor a com- plex web of moral hazard and adverse selection that is not easily solved such that everyone’s incentives line up optimally. Along with con- founding the research manager’s optimization problem, from an economist’s point of view this low observability of effort and outcomes can make empirical research difficult to con- duct, a problem the work by Graff addresses. The work of Schimmelpfennig, King, and Naseem sets out a theory of mergers based on measurements of intellectual capital that is based on an idea of intellectual synergies that can be captured by firms through mergers. This presents an alternative view to the commonly expressed idea that the synergies driving Amer. J. Agr. Econ. 85 (Number 5, 2003): 1283–1284 Copyright 2003 American Agricultural Economics Association