INNOVATION AND TRADE WITH ENDOGENOUS MARKET FAILURE: THE CASE OF GENETICALLY MODIFIED PRODUCTS.

We build a partial-equilibrium, two-country model to analyze some implications of the introduction of genetically modified (GM) products. In the model, innovators hold proprietary rights on the new technology, whereas farmers are (competitive) adopters; some consumers deem food produced from GM products to be inferior to traditional food; countries trade both traditional and GM products; countries can adopt regulations (such as mandatory labeling of GM products) that have direct trade implications; and, crucially, the mere introduction of GM crops affects the costs of non-GM food (because it makes it necessary to implement costly identity preservation). The analysis shows that, although agricultural biotechnology innovations have the potential to improve efficiency, some agents (consumers and/or producers that adopt the innovation) can actually be made worse off by the innovation, and indeed it is even possible that the costs induced by the innovation outweigh the efficiency gains. The study also illustrates the potential for protectionist policies that arise in the context of regulating GM products. In particular, mandatory labeling of GM products (as being implemented by the European Union) is unnecessary, inferior to a system of voluntary labeling, and has costly implications from the perspective of an exporting country that adopts GM products. But this costly labeling policy may actually benefit the importing country that implements the labeling requirement.


Issue Date:
2002
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/18555
PURL Identifier:
http://purl.umn.edu/18555
Total Pages:
45
Series Statement:
CARD Working Paper 02-WP 302




 Record created 2017-04-01, last modified 2020-10-28

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)