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Abstract
The seminal work of Freebairn, Davis and Edwards (FDE, 1982) showed that in a
multistage production system, research that reduces production costs at one stage provides
benefits to producers at all stages and to consumers. This work assumed a partial
equilibrium environment, while producers operate in general equilibrium. We apply a
general equilibrium model to investigate the importance of the economic environment in
the distribution of research gains in an extreme example of a multistage production system:
wool. Our results do not support FDE’s conclusions with regard to the distribution of
benefits to producers across production stages – research in a multistage production system
that reduces production costs at one stage will not necessarily provide benefits to producers
at all stages.