Abstract
Although genetically modified (GM) organisms have attracted a great deal of public attention, analysis of their economic impacts has been less common. It is, perhaps, spatial externalities where the divergence between efficient and unregulated outcomes is potentially largest, because the presence of transgenic crops may eliminate or severely reduce the planting of organic varieties and other crops where some consumers have a preference for non-GM crops. This paper constructs a simple model of the possible spatial external effects of the introduction of transgenic varieties and considers some of the public policy options for regulating the divergence between market outcomes and the efficient allocation of resources to GM crops. It is shown that co-existence may be impossible without strong regulation on planting patterns.
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