David Zilberman and Scott Kaplan
University of California, Berkeley
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.
Key words: Genetically modified crops, irreversibility, Golden Rice, adoption, ban, regulation, price, yield effect.