Abstract
Nagy’s estimation reveals a very high rate of return to research and extension in Pakistan’s agriculture. This work demonstrates that this was due mainly to a mis-specified model, with the research and extension variable picking up the effect of omitted variables, namely water and fertilizer. Due to their importance in agriculture, it was not surprising to note that the inclusion of water and fertilizer results in a considerably lower rate of return to research and extension than shown by Nagy . at times even pushing it to a negative value.
