Crop Research Incentives in a Privatized Industry: A Stochastic Approach

We model today's privatized crop research industry as a small number of firms, developing and selling differentiated products to heterogeneous producers. Crop variety research is modeled as a search process, which allows us to differentiate between applied and basic research and recognize research as a stochastic process. We use the framework to develop a number of propositions regarding private research incentives, the spillovers of knowledge, and the impact of public policy. The results suggest an underinvestment in research even when property rights have been established.search process, stochastic process, biotechnology, IPRs, applied R&D, basic R&D, imperfect competition, differentiated products, heterogeneous producers., Agribusiness,

Economic Impacts of Proposed Limits on Trans Fats in Canada

In response to growing concerns about coronary heart disease (CHD), the Government of Canada has recently taken policy measures to reduce Canadian trans fatty acid (TFA) consumption. The mandatory labelling of trans fat content in foods began in December 2005. The House of Commons also established a task force in November 2004 to develop a set of regulations to ban the sale of food products with a TFA content greater than 2 percent. The issue at stake is whether the mandatory content restriction has economic merit. While the mandatory TFA reductions could reduce heart disease and improve the health of Canadians, they also have the potential to increase economic costs faced by all aspects of the Canadian food oil complex, from primary producers to consumers. The goal of this article is to examine the impacts of a mandatory reduction of trans fat content by estimating the potential health benefits and potential adverse impacts on the agri-food sector.Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety,

AN ANALYTICAL AND EMPIRICAL ANALYSIS OF THE PRIVATE BIOTECH R&D INCENTIVES

The study examines the incentives and incidence of private R&D investment in the today's biotech industry. A three-stage search/imperfect competition model is developed to derive the optimal pricing and investment decisions of private firms and to develop conjectures about how these decisions are affected by exogenous factors. The analysis shows that basic public research "crowds in" applied private research while applied public research "crowds out" applied private research. The current technology level and the cost of the experimentation negatively affect private investment, while the price of the final product positively affects the private investment. Moreover, the greater the product heterogeneity, the higher the price charged with the same amount of R&D. Finally, the increase in IPR's and the firm's market size has a positive effect on the private firm's amount of R&D investment. These conjectures are tested empirically using data from the Canola research industry. The results of the empirical analysis strongly support the results derived from the theoretical model.Research and Development/Tech Change/Emerging Technologies,

AN EMPIRICAL ANALYSIS OF PUBLIC AND PRIVATE SPILLOVERS WITHIN THE CANOLA BIOTECH INDUSTRY

The study uses firm-specific data in the biotech canola industry to empirically examine research spillovers among public and private firms at the level of research output, research sales revenue, and research social revenue. The non-pecuniary spillovers that are examined include basic research, human capital/ knowledge (as measured through other-firm expenditures) and genetics (as measured through yields of other-firms). The results provide strong empirical evidence of several research spillovers in the biotech crop research industry such as: basic and applied public research creates a positive spillover for private firms at all levels; applied expenditure within-group reduces other-firm revenue while between-group expenditure increases revenue; genetic spillovers within-group have a positive impact on yield but tend to have a negative impact on firm revenue.Agribusiness,

Pecuniary, Non-Pecuniary, and Downstream Research Spillovers: The Case of Canola

This paper develops an empirical framework for estimating a number of inter-firm and downstream research spillovers in the canola crop research industry. The spillovers include basic research, human capital/ knowledge (as measured through other-firm expenditures), and genetics (as measured through yields of other-firms). The model used to examine spillover effects on research productivity provides evidence that there are many positive inter-firm non-pecuniary research spillovers, which is consistent with a research clustering effect. The second model, which examines spillovers at the level of firm revenue , shows that, while private firms tend to crowd one another, public firm expenditure on basic and applied research creates a crowding-in effect for private firms. This model also shows that enhanced intellectual property rights have increased the revenues of private firms. The third model, which examines social value of each firm's output, provides evidence that downstream research spillovers remain important in this modern crop research industry.basic research, applied research, public research expenditures, private research expenditures, biotechnology, Research and Development/Tech Change/Emerging Technologies, O3,

The consequences of biotechnology : a broad view of the changes in the Canadian canola sector, 1969 to 2012

This article is a broad assessment of the effect of biotechnology on canola in Canada. We examine the effects of biotechnology on the canola industry in terms of area, varieties, and yields, as well as the returns to research and firm-level benefits. Evidence of the privatization of the canola industry is seen in the dominance of the private sector in the registration of new canola varieties. The latest development in the sector is the dominance of a few private firms, which raises new concerns. However, the literature and our calculations indicate considerable benefits from canola research and recent technological advances. The area seeded to canola varieties, the number of varieties available, and canola crop yields have been on an upward trend for 50 years. Current producer benefits were estimated to be more than $1 billion and breeding firm returns were more than$700 million

Searching for genes : public and private spillovers in agricultural research

Crop research has undergone a major transformation in North America and many other parts of the word. The introduction of biotechnology and Intellectual Property Rights (IPR) alter the nature of research products, which in turn changes the structure of the agricultural research industry from perfectly competitive to imperfectly competitive. The implications of these changes are not fully understood. The objective of this thesis is to develop a broader understanding of how biotechnology, changes in IPRs and the resulting changes in industry structure have affected private and public incentives for agricultural research. The specific goals include development of an analytical framework to examine the incentives for private R&D expenditure, and the spillovers between basic and applied research and between private and public firms. To achieve the objective of this study, a stochastic analytical model within an imperfect competitive framework was developed. Specifically, what is developed is a three-stage search/imperfect competition model characterized by two research firms developing and selling differentiated products to producers who are heterogeneous with respect to some attributes. Agricultural research is modeled with explicit recognition of the search process, which allows us to recognize research as a stochastic process with sporadic outcomes and to explicitly model the interaction between basic and applied research. The findings of this study are mainly in the form of propositions. It was shown that basic public research "crowds in" applied private research while applied public research "crowds out" applied private research. The current technology level and the cost of the experimentation negatively affect private investment, while the price of the final product positively affects the private investment. Moreover, it is concluded that, the greater the product heterogeneity, the higher the price charged with the same amount of R&D. Finally, it is shown that the increase in IPR's and the firm's market size has a positive effect on the private firm's amount of R&D investment. The econometric analysis, using data from the canola industry, provides empirical evidence to support the analytical framework and the proposition derived in this study. The study also draws a number of policy implications from the derived propositions

The Distribution of the Economic and Health Benefits from Canola Research

Research and development have influenced the development of the canola industry in Canada. This study uses a three region equilibrium displacement model to examine the effects of two kinds of research and development on canola seed producers, canola processors, canola meal consumers and canola oil consumers. Given health information changes taste the conventional estimate of consumer surplus can not be applied. We modify the Dixit and Norman (1978) methodology to define an ex post measure of consumer surplus. Two hypotheses are examined. The first is that canola producers, processors and consumers have benefited from the health and nutrition research, that increased the demand for canola oil. The second hypothesis is that producer, processor and consumer groups experienced a net gain from the canola's industry decision to focus on the agronomic research that reduced the potential yield of the canola seed in exchange for better quality characteristics. The empirical findings of the study lead to a rejection of the first hypothesis. Although the industry as a whole has gained from health research, Canadian consumers, surprisingly, were worse off with improved health information because they were already enjoying the health benefit at a lower price. Furthermore, the increased consumption of canola oil is shown to generate a positive externality due to a reduction in coronary heart disease costs. These external benefits exceeded the total internal/private benefits within the industry. We fail to reject the second hypothesis. There is not enough empirical evidence to determine whether or not the canola industry or other social groups are worse off from focusing research on the quality characteristics of canola products at the expense of potential yield. It is interesting to note that, according to the mathematical model presented, there are some instances, or parameter ranges, which show that the entire canola industry and/or other social groups were made worse off by pursuing quality based research goals. While this result seems negative at the outset, one should keep in mind the opportunity cost of not pursuing the quality based research goals. In other words, had quality based research not been pursued one might expect the growth of the industry to be either inhibited or ceased altogether