Trading Technology As Well As Final Products: Roundup Ready Soybean and Welfare Effects in the Soybean Complex

A stylized three-region world model for the soybean complex is developed to evaluate the welfare effects of Roundup Ready (RR) soybean adoption. The innovation is modeled in a structural way that explicitly accounts for the incentives open to farmers as well as for the pricing of RR soybean seeds by a multinational firm thatholds intellectual property rights. Themodel, calibrated on recent benchmark data, is solved for various scenarios to evaluate the production, price, and welf2U"e impacts of RR soybean adoption. The United States gains substantially from the superior innovation, with the innovator capturing the larger share of the welfare gains. US farmers benefit in the base scenario, but would be adversely affected if the RR innovation were to increase yields. Spillover of the new technology to foreign competitors erodes the competitive position of domestic soybean producers, and export of the technology per se may not improve the welfare position of the innovating country. With strong overseas intellectual property rights protection, the innovatormonopolist could extract a substantial share of the efficiency gains, thus benefiting the home country. But with weaker international intellectual property protection, profits from foreign sales of the new technology just offset the loss of domestic producer welfare. Consumers in every region gain from the adoption of RR soybeans. Disciplines Agribusiness | Agricultural Economics | Technology and Innovation This report is available at Iowa State University Digital Repository: http://lib.dr.iastate.edu/econ_las_staffpapers/337 RoundupReady ®Soybeans andWelfare Effects in the Soybean Complex Giancarlo Moschini Harvey Lapan Andrei Sobolevsky September 1999 StaffPaper # 324 Theauthors are professor, professor, and research assistant, respectively, in theDepartment of Economics, Iowa State University. An earlier version of this paper was presented at the ICABR conference on "TheShape of theComing Agricultural Biotechnology Transformation; Strategic Investmentand Policy Approaches from an Economic Perspective,"University ofRome Tor Vergata, June 1999. We thank Yoav Kislev and other conference participants for their constructive comments. The support of the U.S. Department of Agriculture, through aNational Research Initiative grant, is gratefully acknowledged. This is Journal PaperNo. J-18548 of theIowaAgriculture and Home Economics Experiment Station, Project No.3539. Send correspondence to:Giancarlo Moschini, Department of Economics, Iowa State University, Ames, lA 50011-1070 (Email: moschini@iastate.edu). Roundup Ready ®Soybeans andWelfare Effects in theSoybean Complex • '• j'c 1 • • '.:'i I I* j -f . I I . • .j