Biotechnology is one of a number of technologies that may improve productivity and competitiveness in the rural and non-rural industries. As in other areas of research in Australia, the biotechnology research program will be undertaken by both the private and public sectors. Determination of an economically efficient balance between private and public research activities has often been made by reference to the market failure model. The principal characteristics of that model (namely indivisibility, inappropriability and uncertainty) suggest several reasons why governments may wish to consider supplementing the research effort undertaken by the private sector. To establish socially optimal levels of public expenditure on biotechnology research and development, and the priorities for such expenditure, it is necessary to go beyond the market failure model and use an explicit cost-benefit framework. Such a framework is developed and the main economic variables likely to affect net social returns to investment in biotechnology research and development are identified. These variables are compared with the funding criteria employed by the National Biotechnology Program Research Grants Advisory Committee and it is concluded that considerable scope exists for injecting additional economic analysis into the assessment procedures currently used by that Committee.