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The Optimal Time to License a Biotech “Lemon”

Author

Listed:
  • W. H. Furtan
  • R. S. Gray
  • J. J. Holzman

Abstract

Genetically modified (GM) wheat is an example of an irreversible technology that will cause environmental and market externalities. The optimal time to license this irreversible technology is examined using real options theory. Given the likely spread of the GM wheat genetics in the environment, the decision to license and adopt GM wheat will increase future herbicide costs for both adopters and nonadopters. Also, without the ability to segregate GM and non‐GM varieties, the market price of wheat is reduced for all producers. This creates a licensing dilemma due to the “lemon” characteristics of the new technology. (JEL Q18, D62)

Suggested Citation

  • W. H. Furtan & R. S. Gray & J. J. Holzman, 2003. "The Optimal Time to License a Biotech “Lemon”," Contemporary Economic Policy, Western Economic Association International, vol. 21(4), pages 433-444, October.
    • Handle: RePEc:bla:coecpo:v:21:y:2003:i:4:p:433-444
    DOI: 10.1093/cep/byg023
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    References listed on IDEAS

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    Cited by:

    1. Wynn, Katherine & Spangenberg, German & Smith, Kevin & Wilson, William, 2017. "Valuing Genetically Modified Traits in Canola Using Real Options," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(2), May.
    2. David W. Bullock & William W. Wilson & Joseph Neadeau, 2021. "Gene Editing Versus Genetic Modification in the Research and Development of New Crop Traits: An Economic Comparison," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1700-1719, October.
    3. William W. Wilson & Xavier Henry & Bruce L. Dahl, 2008. "Costs and risks of conforming to EU traceability requirements: the case of hard red spring wheat," Agribusiness, John Wiley & Sons, Ltd., vol. 24(1), pages 85-101.
    4. Kerr, William A., 2017. "Genomics, International Trade and Food Security," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 18(2), December.
    5. Furtan, William Hartley & Gray, Richard S. & Holzman, J.J., 2005. "Regulatory Approval Decisions in the Presence of Market Externalities: The Case of Genetically Modified Wheat," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(1), pages 1-16, April.
    6. Furtan, William Hartley & Guzel, A. & Weseen, A.S., 2005. "Landscape Clubs: Co-existence of GM and Organic Crops," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24495, European Association of Agricultural Economists.
    7. Shakya, Sumadhur & Wilson, William W. & Dahl, Bruce L., 2013. "Valuing New Random Genetically Modified (GM) Traits in Corn," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(1), pages 1-17, April.
    8. Moschini, GianCarlo & Lapan, Harvey E., 2005. "Labeling Regulations and Segregation of First- And Second-Generation Genetically Modified Products: Innovation Incentives and Welfare Effects," Staff General Research Papers Archive 12275, Iowa State University, Department of Economics.
    9. Kerr, William A., 2003. "Science-based Rules of Trade: A Mantra for Some, An Anathema for Others," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 4(2), pages 1-12.

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    More about this item

    JEL classification:

    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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