Providing the Correct Incentives for Genetic Modification

Abstract

Despite a steadily decreasing population growth rate, the absolute level of population is rising and thus ever-increasing supplies of food are required – especially in regions where environmental degradation compromises the ability to produce food. The prospect that genetically modified crops might greatly enhance yields is probably the single greatest argument in favour of genetic engineering of plants (Reiss and Straughan, 1996). One major cause of reduced crop yields is due to crop pests. Worldwide, around a third of all potential crop production is lost through pests (Reiss and Straughan, 1996). The potential for increased crop yields arises from the reduction of crop losses due to pests. Indeed, according to Reiss and Straughan (1996) the most immediate source of increased crop yields will be through enhanced pest resistance. Enthusiasts argue that genetic pest resistance will lead to enhanced yields, reduce the use of pesticides and result in reduced consumer prices. However, there is a concern that GM (genetically modified) crops may present a threat to the environment. In this chapter we limit our analysis to the question of possible impacts on biodiversity caused by a reduction in the availability of food for organisms due to the incorporation of a pest-resistant gene into agricultural crops. The impact on biodiversity will obviously depend on how biodiversity is measured. We utilise the most simple representation of biodiversity – the number of species per unit area. The central question we shall address in this chapter is whether policy on GM crops should be directed towards the growth of the crops themselves or the R&D which leads to the technology for growing GM crops. Obviously, this is not the only issue to be addressed, but we focus on this issue because it is not an issue that has been much addressed in the environmental economics literature. Perhaps this reflects the fact that most economists’ intuition would be that if, as we shall assume, it is the growth of GM crops rather than the undertaking of GM R&D per se which damages the environment, then one should regulate the growing of GM crops. Such regulation may indirectly affect the rate of R&D that is done, but that is a consequence of the policy not a direct target of the policy. In a closely related paper by Sianesi and Ulph (1999) which addresses this question, that is indeed precisely the conclusion that is reached, namely that the only intervention that is