Initial efforts to estimate the effects on productivity of diversity among modern varieties in a production function framework have been unsatisfactory in at least two respects. First, the conventional primal approach estimates the marginal effects of diversity on technical efficiency but is unable to examine issues of allocative efficiency since it does not explicitly address producer behavior with respect to prices. Second, measures of genetic diversity used in previous studies may not have fully represented the diversity present in the crop. The development and incorporation of a biologically meaningful index of crop genetic diversity into an economic decision-making model is not straightforward. Previous studies have most often used diversity measures based on named varieties or pedigree information. In this paper, we employ recently developed methods to classify the wheat cultivars grown in China into morphology groups, constructing an index of spatial diversity adapted from the ecology literature using these groups and variety area shares. Since crop area allocations are choice variables, we specify crop genetic diversity as endogenous in a simultaneous system with a cost function and input shares. This approach provides a stronger conceptual linkage between crop genetic diversity, policy variables, and the economic decisions of farmers. The unique data source combines information on variety characteristics and variety area shares with policy, economic and environmental variables for the seven major wheat-producing provinces in China during the time period from 1982 to 1997. Results suggest that the crop genetic diversity, measured as the "equitability" of the spatial distribution of wheat morphology groups, has an economic cost. Future work will further investigate the relationship of crop genetic diversity to economic efficiency and policies.

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