How do GM/non GM coexistence regulations affect markets and welfare?

Abstract

This paper presents a theoretical economic model assessing the effects of the level of mandatory genetically modified (GM) and non-GM coexistence regulations on market and welfare outcomes. We assume vertical differentiation of GM and non-GM goods on the consumer side. Producers of non-GM crops face a probability of having their harvest downgraded if gene flow from GM fields raises its content in genetically modified organisms (GMOs) above the labeling threshold. The government may impose on GMO producers mandatory ex ante isolation distances from non-GM fields in order to decrease the probability of non-GM harvest downgrading. It may also introduce an ex post compensation to non-GMO farmers for profit losses due to harvest downgrading, with a compensation fund financed by GMO producers and/or the state. Assuming endogenous crop choices and prices, we study the effects of ex ante regulation and ex post liability on four outcomes: market equilibrium, the achievement of coexistence, and both global and interest group welfare.