The real option value of multistage agricultural research for development.

Agricultural research for development (AR4D) donors face increasingly austere fiscal outlooks that restrict their ability to commit to high impact, high risk, agricultural research projects with long time horizons. This results in a series of short-term, piecemeal funding arrangements that inhibit the AR4D community's ability to conduct the disruptive research necessary to meet the Sustainable Development Goals. Real option valuation (ROV) presents a potential mechanism offering donors the flexibility they require to justify long term research funding commitments. However, adaptation of existing ROV methods to the AR4D context is complicated by the financial and corporate underpinnings of these methods, which are inconsistent with the non-market character of most AR4D projects. Adaptation is also complicated by the multistage structure of most AR4D projects, since existing ROV methods are mostly limited to single-stage projects. Here I present a multistage ROV method derived from novel theoretical underpinnings that are consistent with the AR4D context. As an illustrative example, I apply the derived model to evaluate a real, four-stage potato research project.