Regulatory Approval Decisions in the Presence of Market Externalities: The Case of Genetically Modified Wheat

This study examines the optimal approval strategy for genetically modified (GM) wheat varieties in Canada and the United States. Without an affordable segregation system, the introduction of GM wheat will create a market for "lemons" that will result in the loss of important export markets. Using a differentiated product trade model for spring wheat, with endogenous technology pricing, a payoff matrix is generated for the possible approval outcomes. Results show that the existence of the market externality removes the first-mover advantage for wheat producers from the approval of the new GM wheat variety. There are large distributional effects; wheat producers lose economic surplus, while consumers and the biotech company gain economic surplus. With a larger domestic market, the United States is more likely to experience net gain in economic surplus from the introduction of GM wheat.


Issue Date:
2005-04
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/30778
Published in:
Journal of Agricultural and Resource Economics, Volume 30, Number 1
Page range:
12-27
Total Pages:
16




 Record created 2017-04-01, last modified 2017-04-04

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