Progress 06/15/01 to 06/14/04
Outputs
Three distinct pieces of research were conducted. First, a dynamic model of diffusion of a genetically modified (GM) crop technology was developed and simulated using U.S. soybean market data. The model accounts for factors specific to agricultural markets, such as oligopsony power of crop processors, grower characteristics, and identity preservation requirements. The simulation results show how these factors affect the magnitude and distribution of the potential gains from adopting genetically modified crops. In particular, the market power of crop processors decreases equilibrium adoption levels and prolongs the diffusion period. Producer uncertainty and perception of the risks associated with planting GM crops increases equilibrium adoption levels but lengthens the diffusion period, thus making the welfare implications ambiguous. Producer heterogeneity with respect to new crop profitability has different effects on the dynamics of the diffusion process, depending on
the average profitability and other distribution parameters. The general conclusion is that the market power of processors diminishes total surplus generated by the GM innovation. Second, the choices that biotechnology companies make about marketing different GM crops in different countries with highly uncertain returns were modeled as a real option problem of the entry decision solved at a micro-level by individual firms. The model was aggregated in order to reflect the heterogeneity of different genetic events, as well as different markets, in terms of their (potential) profitability. The solution to the model produces distributions of entry probabilities that are determined by the functional forms, and parameter values, that reflect different market environments and, thus, govern the evolution of stochastic returns from marketing. These proportions are then compared to the actual data on incidences of biotechnology firms entering foreign markets with different GM crops, and
conclusions about the distribution of their patent values, evolution of returns, and efficiency of local intellectual property rights protection were drawn. In particular, biotechnology firms are more likely to exercise their options early in developed country as opposed to developing country markets. Third, certain peculiarities of the process of development of agricultural biotechnological innovations were considered, in particular the distinction between an R&D race for a gene (genetic event) discovery and subsequent competition for developing the marketable applications of the discovery in the form of genetically modified crops. A formal model is specified and analyzed with regard to how different patent protection policies affect the R&D strategies of firms and social surplus from innovations. It is found that inclusive scope patent protection unambiguously encourages more R&D and faster innovation diffusion than the additional scope protection, which, in turn, is superior to
length.
Impacts
This research has three different types of impact. First, the model of adoption and diffusion of genetically modified (GM) crops highlights how market structure in the food marketing system downstream of the agricultural sector, as well as aspects such as the attitudes to risk of farmers, can affect the speed of diffusion of a new technology such as genetically modified (GM) soybeans. This has potentially important implications for the role of antitrust policy in the commodity processing sector. Second, using a model of real options allows one to establish how private values of biotechnological discoveries are affected by country-level and international legislative and regulatory frameworks and by the demands for particular crop traits (genetic improvements). The findings can be used to develop policy recommendations aimed at maintaining the U.S. leadership in agricultural biotechnology and at preserving competitiveness of the domestic agricultural sector. Third,
understanding the impact of different patent regimes on R&D races in biotechnology allows the policymaker to better design the system of intellectual property rights to maximize the benefits of innovation.
Publications
- Nadolynak, D.A. 2003. Three essays on the economics of agricultural biotechnology. PhD dissertation, The Ohio State University.
|
Progress 01/01/03 to 12/31/03
Outputs
Developed a real options model and collected international patenting and approval data on GM crops which were then used in a simulation model of market entry decisions by firms. Among other things, research found that average value of a GM crop event is lower and volatility of the returns is higher in the less developed countries (LDCs). The values of GM crops were found to be highly heterogeneous, with lower heterogeneity in the LDC's. Part of this heterogeneity is attributed to different potentials of the crops themselves and the other part accounts for the differences in return volatility and size of the markets in the developing and industrialized countries. It was also found that biotech companies recoup most of their R&D expenses, and earn most of their profits, from marketing their agricultural products in the industrialized part of the world, despite the sometimes strong consumer and government opposition. Entering agricultural markets in LDC's was always
delayed due to the higher option value of entry deferral and larger volume of information learned in time.
Impacts
It is important to establish how private values of biotechnological discoveries are affected by country-level and international legislative and regulatory frameworks and by the demands for particular crop traits (genetic improvements). The findings can be used to develop policy recommendations aimed at maintaining the U.S. leadership in agricultural biotechnology and at preserving competitiveness of the domestic agricultural sector.
Publications
- Nadolynak,D. and I.M. Sheldon, 2003. "Valuation of International Patent Rights for Agricultural Biotechnology: A Real Options Approach." Working Paper, AgEconSearch, May 2003. (http://agecon.lib.umn.edu/).
- Nadolynak, D., 2003. "Three Essays on the Economics of Agricultural Biotechnology". Unpublished PhD Dissertation, The Ohio State University, June 2003.
|
Progress 01/01/02 to 12/31/02
Outputs
A dynamic, stochastic model of the soybean complex has been developed which is solved using numerical methods based on iterative optimization techniques which allows the use of more complex, and non-linear functional forms than would be the case with a more simple, but less realistic static model, and allows one to incorporate the effects of uncertainty in the model. In addition, numerical analysis allows calibration of the model with data for the industry, such as rates of technology adoption, behavior of firms etc., which can then be varied to see how sensitive the estimates of the effects of technology adoption are to key parameters. A key result is that a more competitive processing sector speeds up the adoption process. A model of the nature of competitive interaction between biotechnology innovators has also been developed. Empirical observation suggests that patent rights in agricultural biotechnology are concentrated in the hands of a small number of
multinational firms. Existing research suggests that this is the outcome of a patent race whereby biotechnology firms patent genetic structures in order to prevent entry of competing firms before they apply the patented techniques to innovative crop products. In biotechnology, a distinction is made between R&D races for gene discoveries and subsequent competition for developing their marketable applications in the form of genetically modified crops. A formal two-stage model has been developed and analyzed with regard to how different patent protection regimes and other government policies affect R&D strategies and the benefits of innovation. The results show that different patent policies affect the outcomes of biotechnology innovation differently.
Impacts
This research has major significance and potential in terms of understanding how changes in technology, that affect agriculture can also have widespread effects on other parts of the food system, which in turn depend on the rate of adoption of technology, and the nature of competition elsewhere in the food system. This is relevant both to the U.S. as a whole, and also the Ohio food and agricultural system, given the importance of soybean production to the region.
Publications
- Nadolynak, D.A. and Sheldon, I.M. 2002. A model of development of agricultural biotechnological innovations: Patent policy analysis. Working Paper, AgEconSearch. (http://agecon.lib.umn.edu/)
|
Progress 06/15/01 to 12/31/01
Outputs
A dynamic model of adoption of genetically modified (GM) soybean technology specified to allow for market power in processing has been developed and simulated. The initial results show that competition in agricultural processing markets facilitates the process of a supply-push biotechnological innovation and increases adoption levels. Conservative behavior of growers slows the adoption process but, quite counter-intuitively, improves the equilibrium levels of adoption. Higher grower heterogeneity with respect to profitability of the innovation facilitates the adoption process but leads to lower equilibrium adoption levels and higher price of the GM crop. Higher interest rates shorten the adoption period and increase the equilibrium GM output share.
Impacts
This research has important implications for understanding the connection between biotechnology innovation and market structure in the food chain.
Publications
- Nadolnyak, D.A. and Sheldon, I.M. 2001. Simulating the effects of adoption of genetically modified soybeans in the U.S. Working Paper, AgEconSearch. (http://agecon.lit.umn.edu).
|
|