The following is an excerpt of an article by David Zilberman, Scott Kaplan, and Justus Wesseler on The Loss from Underutilizing GM Technologies.
This article introduces a framework based on a real-option approach to assess the economics of delaying the introduction of genetically modified (GM) technologies in agriculture due to concerns about their unintended effects (unexpected environmental side effects). We applied our framework to analyze the consequences of delaying the introduction of Golden Rice, GM corn in much of the world, and GM wheat and rice globally. In the case of Golden Rice, we found that delay of more than 10 years of introduction of the technology may result in several millions of eyesights lost. The damage of the technology must be greater than between $2.7 and $29 billion of discounted net benefits expected to be gained from the technology under various assumptions. The analysis also suggests that restriction of the adoption of GM in corn, rice, and wheat is justified if the net present value of the damage is above $300 billion to $1.22 trillion, depending on assumptions about impacts and interest rate. Finally, the value of information gained in this year must be at least between $27 and $82 billion to justify the one-year delay in the introduction of GMOs. The analysis shows that precaution is very costly.
Introduction
While the discovery of DNA and the resulting biotechnology led to a wide array of applications in medicine, the utilization of genetic engineering (GE) in agriculture has been quite limited despite the many benefits it has yielded (Barrows, Sexton, & Zilberman, 2014a). Heavy regulation of GE technology—in particular practical bans and costly approval processes—limited the application of the technology to only a few crops and a few countries. In the process, an inventory of GE innovations in various stages of development, including some that are ready for commercialization, have been accumulated. In this article, we present a methodology to quantify the cost underutilization of the potential of GE in agriculture and provide several case studies to illustrate this method.
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