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Adverse Selection, Moral Hazard, and Grower Compliance with Bt Corn Refuge

In: Regulating Agricultural Biotechnology: Economics and Policy

Author

Listed:
  • Paul D. Mitchell

    (University of Wisconsin)

  • Terrance M. Hurley

    (University of Minnesota)

Abstract

We develop a principal-agent model of grower compliance with Bt corn refuge requirements for managing insect resistance to the Bt toxin. The model endogenizes the technology price, audit rate, and fine imposed on non-complying growers when grower willingness to pay for Bt corn and compliance effort is private information. Empirical analysis finds that practical application requires capping fine revenue. With such a program, the company raises the technology price and achieves complete compliance. The net welfare change (relative to competitive pricing) due to reducing company revenue and restricting technology access remains beyond the scope of this analysis.

Suggested Citation

  • Paul D. Mitchell & Terrance M. Hurley, 2006. "Adverse Selection, Moral Hazard, and Grower Compliance with Bt Corn Refuge," Natural Resource Management and Policy, in: Richard E. Just & Julian M. Alston & David Zilberman (ed.), Regulating Agricultural Biotechnology: Economics and Policy, chapter 0, pages 599-623, Springer.
    • Handle: RePEc:spr:nrmchp:978-0-387-36953-2_27
    DOI: 10.1007/978-0-387-36953-2_27
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    References listed on IDEAS

    as
    1. Terrance M. Hurley & Paul D. Mitchell & Marlin E. Rice, 2004. "Risk and the Value of Bt Corn," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 345-358.
    2. Hurley, Terrance M. & Babcock, Bruce A. & Hellmich, Richard L., 2001. "Bt Corn And Insect Resistance: An Economic Assessment Of Refuges," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(1), pages 1-19, July.
    3. Mitchell, Paul D. & Hurley, Terrance M. & Babcock, Bruce A. & Hellmich, Richard L., 2002. "Insuring The Stewardship Of Bt Corn: 'A Carrot' Versus 'A Stick'," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(2), pages 1-16, December.
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    Cited by:

    1. Dakuan Qiao & Lei Luo & Xingqiang Zheng & Xinhong Fu, 2022. "External Supervision, Face Consciousness, and Pesticide Safety Use: Evidence from Sichuan Province, China," IJERPH, MDPI, vol. 19(12), pages 1-16, June.

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