@article{Bullock:293186,
      recid = {293186},
      author = {Bullock, David W. and Wilson, William W. and Neadeau,  Joseph F.},
      title = {Genetic Editing (GE) Versus Genetic Modification (GM) in  the Research and Development of New Crop Varieties: An  Economic Comparison},
      address = {2019-09-27},
      number = {1187-2019-3608},
      series = {Agribusiness and Applied Economics Report No. 793},
      pages = {41},
      month = {Sep},
      year = {2019},
      abstract = {Genetic editing (GE) offers an additional tool to  traditional crop breeding and genetic modification (GM) for  developing new traits in agricultural crops. Surveys of  leading crop technology companies and a review of the  literature indicate that GE may offer considerable  economies of scale when compared to GM crop development.  These economies are generally attributed to lower R&D  costs, higher probability of R&D success (particularly in  the initial discovery phase), and the fact that GE crops do  not require an extra regulatory approval step (at least in  most countries outside the EU) that adds considerable cost  and uncertainty to the GM development process. This study  examines the economics of GE versus GM crop development  from the perspective of the minimum required market size  (in terms of potential crop area) of a potential crop in  order for the technology firm to expect to break even in  terms of the real option value (ROV) of the project. The  valuation model is unique in that it combines a decision  tree with a binomial lattice in the valuation of an  abandonment real option on the new crop technology. The  decision tree is used to model the R&D process (which is  non-market driven) while the binomial lattice is used to  value the market-driven commercialization of the candidate  crop variety. A survey of industry experts provided a range  of values with regards to the time and cost of each R&D  phase for both GE and GM crop development, so stochastic  simulation was incorporated into the ROV model. A primary  result from the empirical model is that across a wide range  of trait values, the required cropping area for breaking  even on a GE crop variety was consistently 96.3% less than  the area required for a GM crop with the identical trait  value and commercialization profile. Sensitivity analysis  indicated that the GM (and GE to a lesser extent) required  area was highly sensitive to the probability of success in  the discovery phase. Somewhat surprising, the results for  GM and GE were not sensitive to the abandonment option  parameters – an indication that this type of real option  adds little value to projects primarily due to the low  volatility of returns during the commercialization phase.},
      url = {http://ageconsearch.umn.edu/record/293186},
      doi = {https://doi.org/10.22004/ag.econ.293186},
}