On Transforming China's Agricultural R&D Institutes Into Enterprises

China' s transforming agricultural R&D institues into enterprise (Tardie) aims tostrengthen the integration of agricultural science and agricultural economics. Theanalysis shows that Tardie policy and R&D effort of agricultural R&D institues (ARDI)are a pair of endogeneous variables with the use of game theory. Holding other thingsconstant, more public R&D investment encourages more efforts of ARDI, and viceversa. Less effort devoted to agricultural R&D, which leads to low quality of agriculturalR&D performance, may results in government decision to implement Tardie policy.The rationale of the Tardie policy also could also lies in the facts of rise of opportunitycost of public R&D, resulted in less effort of ARDI. However, if the effort of ARDIdecreased as the result of low public R&D investment, Tardie policy seems notsufficient to encourage more efforts of ARDI.Rent-seeking behavior of government officials badly disencouages ARDI' s effortdevoted to agricultural R&D performance. If both government and ARDI pay moreattention to the quality of agricultural R&D output, there will be more effort and morepublic investment. If Tardie could not resolve the problems of government rent-seeking, monitoring of agricultural R&D output, shirking problem may still exsits.While the government can encourage ARDI' s effort by increasing ARDI' s paymentlevel.In reagard to ARDI and enterprise, profit-sharing contract (PSC) will dominate sinceARDI are usually with less management skills and enterprises are with less R&Dresources. The domination of PSC will lead to low efficiency of ARDI, since shirkingbehavior will not be monitored and ARDI lacks incentive to work. But fixed wagecontact (FWC) and fixed rental contract (FRC) will finally become popular, wjich couldlead to more efficiently working agricultural R&D system.The examination of ARDI and enterprise also show that when they make decisionssimutaneously, the critial value will be 0.5, while it will be 0.82 if one of them act beforethe other. The result implies that PSC space will increase if they act simutaneously.However, FWC increases when technology in production of goods becomes more andmore important. FRC will increase when mangement skills become more important.Private agriculnaral R&D investment has been growing world wide, but differs amongcountries. The common feature is that those countries with rapidly growing privateR&D or a large share of private agricultural R&D investment also has large volume of public agricultural R&D investment. Private R&D investment is affected by diversefactors, including investment payment, market demand, innovation opprtunity andappropiatability of technology progress. China's private agricultural R&D takes 13percent in total agricultural R&D investment based on author's survey. In agriculturalchemical sector, the prive R&D investment takes 48 percent. In agricultural machinarytechnics and agricultural processing sector, the percenatges are 14 and 19 respectively.While in planting, livestock and agricultural extension etc., the percentage is less than 10.The private R&D inveatment in agricultural chemical sector are most stable, andfollowed by machinary, agricultural processing and livestock sector.Public and private agricultural R&D inestment in China are confirmed to becomplementary rather than substitute, with the use of regressions on program leveldata. The complementarity means that more public R&D should be invested in order toencourage more private agricultural R&D investment.Attracting more enterprise to invest in agricultural R&D can contribute to theintegration of agricultural R&D and agricultural economics. However, more and moreenterprises will be involved-in rent-seeking problem, which will damage the efficientallocation of R&D resources. Things may become worse when mornitoring is difficultor highly costed. In this case, public agricultural R&D investment may crowd outprivate agricultural R&D investment.Tardie may benefit China's agricultural R&D system, but may not. Results show thatthe supply of agricultural technology may decline. The reasons lie in many facts, such asagricultural R&D can be afftected by economic fluctuations; limited private agriculturalR&D investment; bias of private agricultural R&D investment; outflow of researchersand shrinking supply ability of agricultural technology. Rent-seeking behavior may bemore popular as the allocation of public agricultural R&D resources are morecompetitive.The paper finally suggests that the government should:(1) increase public agricultural R&D as it claimed; (2) consider the bias feature ofprivate investment; (3) think clearly before pushing forward the Tardie reform; (4)establish a more well performed agricultural R&D system; (5) increase income level ofARDI; (6) perfect supporting policies; and (7) keep the agricultural R&D system stable.