A Dual Approach to Evaluating Research Benefits in the Presence of Trade Distortions

We present a new approach for evaluating the welfare consequences of technical change. A major feature is its ability to incorporate multiple distortions and multiple sources of technical change in interrelated markets. A modified balance‐of‐trade function provides money measures of welfare change in terms of producer profits, consumer expenditures, and tax revenues. Alternative specifications of technical change are presented to capture the effects of differences in the form of technical change. In an illustrative numerical example, the approach is applied to a case involving two distortions and technical changes in two related markets. The example shows that the approach is reasonably easy to use and that accounting correctly for price distortions can have important implications for research benefit measures.