Three essays on the economics of agricultural biotechnology

This dissertation consists of three essays on the economics of agricultural biotechnology. In the first essay, A Model of Diffusion of Genetically Modified Crop Technology in Concentrated Agricultural Processing Markets - The Case of Soybeans, a dynamic model of diffusion of a genetically modified (GM) crop technology is developed and simulated using the U.S. soybean market data. The model accounts for factors specific to agricultural markets, such as oligopsony power of crop processors, grower characteristics, and identity preservation requirements. Simulation results show how these factors affect the magnitude and distribution of the potential gains from adopting genetically modified crops. In particular, market power of crop processors decreases the equilibrium adoption levels and prolongs the diffusion period. Producer uncertainty and perception of the risks associated with planting GM crops increases equilibrium adoption levels but lengthens the diffusion period, thus making the welfare implications of such a situation ambiguous. Producer heterogeneity with respect to new crop profitability has different effects on the dynamics of the diffusion process, depending on the average profitability and other distribution parameters. The general conclusion is that, if GM crops are safe for human consumption and do not harm the environment, market power of the processors diminishes total surplus generated by the GM innovation.; The second essay is called Valuation of International Patent Rights for Agricultural Biotechnology. In it, the choices that biotechnology companies make about marketing different genetically modified (GM) crops in different countries with highly uncertain returns are modeled as a real option problem of the entry decision solved at a micro-level by individual firms. The model is aggregated in order to reflect the heterogeneity of different genetic events, as well as different markets, in terms of their (potential) profitability. The solution to the model produces distributions of entry probabilities that are determined by the functional forms, and parameter values, that reflect different market environments and, thus, govern the evolution of stochastic returns from marketing. These proportions are then compared to the actual data on incidences of biotech firms entering foreign markets with different GM crops, and conclusions about the distribution of their patent values, evolution of returns, and efficiency of local intellectual property rights protection are drawn.; In the third essay, Patent Policy Analysis for the Case of Agricultural Biotechnological Innovations, certain peculiarities of the process of development of agricultural biotechnological innovations are considered, in particular the distinction between an R&D race for a gene (genetic event) discovery and subsequent competition for developing the discovery's marketable applications in the form of genetically modified crops. A formal model is specified and analyzed with regard to how different patent protection policies affect firms' R&D strategies and social surplus from innovations. It is found that inclusive scope patent protection unambiguously encourages more R&D and faster innovation diffusion than the additional scope protection, which, in turn, is superior to length protection (which speaks in favor of U.S. patenting practices as compared to those of the European Union). Introduction of licensing into the model either preserves or reverses the ranking of protection regimes depending on the nature of licensing contracts.