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Abstract

Crop coexistence is now at the core of the debate on GM technology in Europe. New regulations are being designed in the E.U. in order to "correct" potential production externalities and ensure that conventional and organic production will remain a profitable alternative for farmers. We use a simple Mussa-Rosen type model of preferences to capture the effects of introducing a cost-saving GM crop on incumbent crops, taking explicitly into account consumers' distaste for GM food products. Using a two-technology model, we derive necessary and sufficient conditions for coexistence and show that perfectly competitive farmers with rational expectations will adopt the socially efficient level of GM technology. We also solve a three-technology model to study the impacts of the availability of GM technology on conventional and organic production. We formally characterize the entire set of possible outcomes using only three parameters that reflect technologies' relative performance. We use our model to explore the effects of negative production externalities created by GM technology and of a change in consumers' tastes on coexistence.

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