Technology Fees Versus Gurts in the Presence of Spillovers: World Welfare Impacts

A two-country extension of an ex ante simulation model of research and development (R&D) in agriculture developed by Lence, Hayes, McCunn, Smith, and Niebur (2005) is used to analyze issues regarding intellectual property (IP) protection, spillovers, and genetic use restriction technologies (GURTs) in the context of the United States and South America soybean sectors. The model is used to examine how various IP protection levels in the United States and South America might have impacted on the level of innovation, market equilibrium and the welfare of market participants had they been in place prior to the introduction of Roundup Ready technologies. The results indicate that technology fees that are charged in the United States but not in South America are harmful to US producers. Neither producers in the United States nor US-based R&D firms have incentives to support or develop technologies such as Roundup Ready that can be easily adopted in countries with low IP protection. However, total world welfare is higher when this type of transferable R&D is conducted. Equalizing IP protection across countries gives R&D firms a strong incentive to conduct R&D of relevance to both countries. Surprisingly, the introduction of a low level of IP protection in South America does not necessarily improve expected welfare of US producers. To the extent that GURTs contribute toward IP protection harmonization, they can be world-welfare enhancing. However, the positive impact of GURTs could be greatly reduced if they increase IP protection beyond a certain level. The use of GURTs to impose IP protection in South America generally increases the expected welfare of US producers.