REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY potx

REGULATING AGRICULTURAL
BIOTECHNOLOGY:
ECONOMICS AND POLICY
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Editor:
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REGULATING AGRICULTURAL
BIOTECHNOLOGY:
ECONOMICS AND POLICY
Edited by
RICHARD E. JUST
University of Maryland
JULIAN M. ALSTON
University of California, Davis
DAVID ZILBERMAN
University of California, Berkeley

LiesI Koch, Tecfinical Editor
Springer
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Contents
INTRODUCTION
1 Regulating Agricultural Biotechnology: Introduction and Overview: 3
Richard E. Just, David Zilberman, and Julian M. Alston
PARTI
AGRICULTURAL BIOTECHNOLOGY
IN
THE CONTEXT
OF A REGULATED AGRICULTURAL SECTOR

Section I.l - Technological Regulation in U.S. Agriculture
2 Economic Analysis and Regulating Pesticide 21
Biotechnology at the
U.S.
Environmental Protection Agency
Derek Berwald, Sharlene Matten, and David Widawsky
3 Compliance Costs for Regulatory Approval of New Biotech Crops 37
Nicholas Kalaitzandonakes, Julian M. Alston, Kent J. Bradford
4 Regulation of Technology in the Context of
U.S.
Agricultural Policy 59
Bruce Gardner
5 Managing Liabilities Arising from Agricultural Biotechnology 81
Stuart Smyth, Peter W.B. Phillips, W.A. Ken-
Section 1.2 - Benefits from Agricultural Biotechnologies
6 Status of Agricultural Biotechnology: An International Perspective 103
Robert E. Evenson
7 Interactions Between Trade Policies and GMFood Regulations 125
Kym Anderson
Section 1.3 - Hidden Benefits of Agricultural Biotechnologies
8 The Value of Non-Pecuniary Characteristics of Crop 145
Biotechnologies: A New Look at the Evidence
Michele C. Marra and Nicholas E. Piggott
9 Bt Corn's Reduction ofMycotoxins: 179
Regulatory Decisions and Public Opinion
Felicia Wu
vi REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
Section 1.4 - Consumer and Market Acceptance of Agricultural Biotechnologies
10 Consumer Attitudes and Market Resistance to Biotech Products 201
Wallace E. Huffman and Matt Rousu

11 Comparison of Consumer Responses to Genetically 227
Modified Foods in Asia, North America, and Europe
Jill J. McCluskey, Kristine M. Grimsrud, and Thomas
1
Wahl
PART II
CONCEPTUAL ISSUES IN REGULATING
AGRICULTURAL BIOTECHNOLOGY
Section II.l - The Causes of Regulations and Their Impacts
12 The Economics of Biotechnology Regulation 243
David Zilberman
13 Labeling Regulations and Segregation of
First-
and
Second-
263
Generation GM Products: Innovation Incentives and
Welfare
Effects
GianCarlo Moschini and Harvey Lapan
Section 11.2 - Environmental Risks of Agricultural
Biotechnologies and Regulatory Response
14 Regulation of Technology in the Context of Risk Generation 283
Erik Lichtenberg
15 Environmental Effects of Genetically Modified Crops: 301
Differentiated Risk Assessment and Management
David E. Ervin and Rick Welsh
16 Irreversibility, Uncertainty, and the Adoption of. 327
Transgenic Crops: Experiences from Applications
to HT Sugar

Beets,
HT
Corn,
and Bt Corn
Sara Scatasta, Justus Wesseler, and Matty Demont
Section II.3 - Imperfect Competition, Political Economy,
and Regulation of Agricultural Biotechnologies
17 Anticompetitive Impacts of Laws That Regulate Commercial 353
Use of Agricultural Biotechnologies in the United States
Richard E. Just
18 Regulation, Trade, and Market
Power:
397
Agricultural Chemical Markets and Incentives for Biotechnology
Vincent H. Smith
CONTENTS vii
19 Regulation and the Structure of Biotechnology Industries 421
Paul Heisey and David Schimmelpfennig
20 The Social
Welfare
Implications of Intellectual Property Protection: 437
Imitation and Going Off Patent
James F. Oehmke
PART III
CASE STUDIES ON THE ECONOMICS OF REGULATING
AGRICULTURAL BIOTECHNOLOGY
Section III.l - International Evidence
21 International Approval and Labeling Regulations of 459
Genetically Modified Food in Major Trading Countries
Colin A. Carter and Guillaume P. Gruere

22 Benefits and Costs ofBiosafety Regulation in India and China 481
Carl E. Pray, Jikun Huang, Ruifa Hu, Qihuai Wang,
Bharat Ramaswami, and Prajakta Bengali
23 Biosafety Regulation of Genetically Modified Orphan Crops 509
in Developing Coumtries: A
Way
Forward
Jose Falck Zapeda and Joel I. Cohen
Section III.2 - Refuge Policy and Regulatory Compliance at the Farm Level
24 Bt Resistance Management: The Economics of Refuges 535
George B. Frisvold
25 Managing European Corn Borer Resistance to 559
Bt Com with Dynamic Refuges
Silvia Secchi, Terrance M. Hurley, Bruce A. Babcock,
and Richard L. Helhnich
26 Farmer Demand for Com Rootworm Bt Corn: 579
Do Insect Resistance Management Guidelines Really Matter?
Ines Langrock and Terrance M. Hurley
27 Adverse Selection, Moral
Hazard,
and Grower 599
Compliance with Bt Com Refuge
Paul D. Mitchell and Terrance M. Hurley
28 Damage from Secondary Pests and the Need for Refuge in China 625
Shenghui Wang, David R. Just, and Per Pinstrup-Andersen
Vlll REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
Section III.3 - Crop-Specific Issues in Biotechnology Regulation
29 Regulation of Biotechnology for Field Crops 639
Richard K. Perrin
30 Regulation of Transgenic Crops Intended for 647

Pharmaceutical and Industrial Uses
Gregory D. Graff
31 Regulation of Biotechnology for Forestry Products 663
Roger A. Sedjo
32 Regulation of Biotechnology for Specialty Crops 683
Kent J. Bradford, Julian M. Alston, and Nicholas Kalaitzandonakes
CONCLUSIONS
33
What
Have
We
Learned,
and
Where
Do We GofromHere? 701
Julian M. Alston, Richard E. Just, and David Zilberman
INDEX 723
Introduction
REGULATING AGRICULTURAL
BIOTECHNOLOGY: ECONOMICS AND
POLICY
Chapter 1
REGULATING AGRICULTURAL
BIOTECHNOLOGY: INTRODUCTION
AND OVERVIEW
Richard E. Just,* David Zilberman/ and Julian M. Alston
*
University
of
Maryland,

* University
of
California,
Berkeley,
University
of
California,
Davis
Abstract: This chapter introduces the topic of this book, drawing upon the content of its
chapters. An overview is provided on the economics of technological regulation
as applied to agricultural crop biotechnologies. Key elements of agricultural
biotechnology regulation in the United States are summarized.
Key words: agricultural biotechnologies, causes and consequences of technological regula-
tion, overview and synthesis
1.
INTRODUCTION
Agricultural biotechnologies apply modern knowledge in molecular and cell
biology to produce new varieties and similar genetic materials. The use of
genetically modified (GM) crop varieties has grown dramatically since they
were introduced in 1995, and large portions of the land allocated to corn,
soybeans, and cotton are grown with these varieties. The evidence from the
United States, Canada, China, India, Brazil, and Argentina suggests that these
applications of biotechnology in agriculture increase yield, reduce the use of
pesticides, and save production costs.
Many expect agricultural biotechnologies to play a crucial role in meet-
ing growing food demands to accommodate population and income growth
in the future and, at the same time, to contribute to containing the environ-
mental footprint of agriculture and to provide new sources of biofuels. Yet,
others view agricultural biotechnologies as inadequately tested, dangerous
technologies that pose unforeseen risks and that must be handled with the

utmost of care. These differences in perspective have contributed to policy
4 REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
debates on the regulation of agricultural biotechnologies and to regulatory
differences across locations.
Even when they provide net economic benefits, new technologies almost
always generate gainers and losers where some of the negative consequences
may involve external effects on human health or the environment. Under
classical theory, whether externalities are actual or perceived, regulation is
typically justified as a means of correcting such market distortions and en-
hancing net social benefits from production and consumption, regardless of
distributional impacts. Under interest group theory (Becker 1983), individu-
als and groups support political activities that are in their best interest.
Regulations are viewed as means of redistribution and are the consequence
of influence by politically powerful interest groups who benefit as a resuh,
often with net social loss. Understanding the political economy of current
regulations likely calls for combining both approaches.
Whether primarily for efficiency or distributional reasons, the develop-
ment, release, adoption, and application of agricultural biotechnologies are
increasingly subject to public scrutiny and regulation. Compliance with these
regulations adds considerably to the time lags and costs borne in bringing
new biotechnology products to market. Because of differences in interest
groups, distribution, and local circumstances, it is not surprising that biotech-
nology regulations differ among countries, among states within countries, and
among biotechnologies. The regulations modify the rate and form of techno-
logical change and the distribution of benefits and costs. Without doubt, the
economic consequences are significant, although the full consequences of
technological regulation in agriculture are not well understood.
The rapid evolution of agricultural biotechnologies has led to the emer-
gence of significant bodies of research on various aspects of the economics
of crop biotechnologies, including the adoption and impact, consumer and

producer attitudes, and the management of intellectual property rights. How-
ever, comparatively little research has been conducted on the economics of
the regulation. This book aims to fill this void and provide a foundation for
further research on the economics of regulation of agricultural biotechnol-
ogies.
The chapters of the book are based on a three-day conference held in
Arlington, Virginia, on March 10-12, 2005, that presented and discussed
methods and current issues in the "Economics of Regulation of Agricultural
Biotechnologies," with an emphasis on drawing together the collecfive state
of wisdom on forces shaping regulation of agricultural biotechnologies and
the consequences for U.S. agriculture and the food system.
The objective is to increase general understanding of the issues associ-
ated with regulation of agricultural biotechnologies. Positive and normative
perspectives are presented on how and why societies do and could manage
these technologies, and the actual and potential consequences in terms of
benefits and costs to consumers, producers, innovators, and the environment.
INTRODUCTION AND OVERVIEW 5
The book is written mostly by economists, but is aimed at the wider audi-
ence of educated people interested in the policy debate on the future of crop
biotechnology.
A unique feature of this book is that we integrate and build upon bodies
of literature from disciplines both within and outside economics. We build
upon the vast literature on the economics of agricultural research and techni-
cal change, but we also provide perspectives on the problems and potential
of agricultural biotechnology and its health implications from a contributing
plant biologist, public health scholars, and a policymaker. Several lines of
economic study are integrated: (i) new methods of environmental econom-
ics,
in particular, the economics of pest control and resistance management;
(ii) new methods of evaluating consumer preferences and willingness to pay

for environmental amenities and product quality; (iii) public economics for
policy design; and (iv) political economy to assess policy viability within a
political structure.
This chapter provides an introduction to the rest of the book in several
ways.
First, it reports on the conference that provided the genesis of the
work. Second, it presents an "economic way of thinking" about the regula-
tion of agricultural biotechnology, which provides some organizing princi-
ples for the ideas in the book and its structure. Third, it provides a summary
description of the main elements of regulation of U.S. agricultural biotech-
nology, which serves as the context for many of the chapters concerned with
U.S.
agriculture, and as a contrast to regulations in other countries reported
in other chapters. Finally, it provides an overview of the chapters that make
up the rest of the book, and a brief synthesis and synopsis of what it all
means.
2.
THE ECONOMIC STATUS OF CROP BIOTECHNOLOGY
Biotechnology has transformed the production systems of major field crops,
including soybeans, corn, cotton, and canola. Since their first large-scale
introduction in 1996, the global area planted to biotech crops grew to 200
million acres by 2004 (James 2004). Almost 60 percent of this acreage was
in the United States, where biotech varieties represented 85 percent of the
soybeans, 76 percent of the cotton, and 45 percent of the corn acreage
(National Agricultural Statistics Service 2004). These high rates of adoption
reflect farmer benefits associated with these crops, which have been almost
exclusively targeted toward providing herbicide tolerance, insect resistance,
or both. Such benefits come from increased yields, lower risk, reduced use
of chemical pesticides, gains from reduced tillage and other modified pro-
duction practices, and savings in management, labor, and capital equipment

(Kalaitzandonakes 2003).
6 REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
Notably, however, the substantial adoption of agricultural biotechnology
to date has been concentrated in a small number of countries and confined to
a small number of traits in a small number of crops—specifically, pest re-
sistance and herbicide tolerance in feed grains, oil seeds, and cotton. Biotech
food products emphasizing output traits of value to consumers (e.g., long
shelf-life tomatoes) or input traits for lightly processed crops (e.g., Bt pota-
toes or sweet corn) have been ignored or disadopted by food manufacturers
or retailers in the face of perceived market resistance or political opposition.
The fact that adoption of available biotech products has been limited to a
small number of countries reflects a combination of market resistance, legal
barriers to adoption, and trade barriers against importation of biotech crop
products. The same barriers also have reduced incentives for biotech compa-
nies to invest in the development of new biotech products. These same fac-
tors may have contributed to the erection of regulatory barriers to develop-
ment and adoption of biotech crops, which themselves provide a further
disincentive for biotech companies.
3.
RATIONALIZING REGULATION
The conventional economic argument for government intervention in the
economy is based on the idea of market failure—that the unfettered working
of the free-market mechanism has given rise to an inefficient allocation of
resources or an unsatisfactory distribution of income—and that government
intervention can make things better. Various types of market failures can and
do arise in agriculture, often associated with the use of particular technolo-
gies,
giving rise to arguments for government intervention. Examples in-
clude (i) various kinds of pollution externalities (such as pollution of air or
groundwater associated with the use of agricultural chemicals); (ii) incom-

plete, ill-defined, or ill-enforced property rights to assets such as irrigation
water or other natural resource stocks, or to intellectual property including
plant varieties or other inventions; (iii) incomplete or asymmetric informa-
tion about product characteristics including how a product was produced and
whether it is safe to consume; and (iv) market distortions arising from the
exercise of market power by agribusiness firms in the supply of inputs or
technology, or in the marketing of agricultural products.
Government regulations to address these concerns are pervasive, and
largely taken for granted, but the regulations evolve as knowledge, institu-
tions,
and market characteristics change. For example, various agricultural
chemicals have been banned (such as DDT in U.S. agriculture); selected uses
of others have been eliminated by regulation (such as use of pesticides near
surface water); and environmental and occupational health and safety regu-
lations limit how they may be applied. Similarly, the laws and rules govern-
INTRODUCTION AND OVERVIEW 7
ing rights to natural resources and to intellectual property are constantly
evolving as circumstances, knowledge, and institutions change. In particular,
expanded intellectual property rights applied to plant varieties have contrib-
uted importantly to development of the agricultural biotechnology industry
as a predominantly private enterprise in the United States. And with rising
affluence, and in the wake of various food scares, increasing attention has
focused on public provision of information and food-safety assurance, lead-
ing to an attendant rise in food-safety regulation.
In contemplating the economics of regulation of agricultural biotechnol-
ogies,
one must consider both policy design and policy impact. Research on
policy design is needed to optimize the parameters of the regulatory systems.
For example, a major challenge is to identify which biotechnology innova-
tions should be pre-tested by government, and to identify the correct testing

protocol (Zilberman 2006). Research on policy impact is needed to quantify
the benefits and costs of regulations and their distribution. To measure these
correctly, counterfactual circumstances must be identified, and when possi-
ble,
impacts on treatment and control groups should be compared. Govern-
ment intervention to correct one distortion may create another, making the
full effects more difficult to discern. For instance, the provision of intellec-
tual property rights to inventors of modified crop varieties has two some-
what offsetting effects: they enhance incentives to invest in research and de-
velopment, while allowing firms to charge monopoly prices for their inven-
tions,
resulting in sub-optimal adoption rates and loss of consumer welfare
because of high prices. Evaluating policy design and policy impact must
consider heterogeneity of economic and political environments. This may
help to explain international differences in the regulation of agricultural
biotechnologies, as well as commodity trade policies.
4.
CAUSES AND CONSEQUENCES
Regulations affecting the development and adoption of biotech crops, and
their causes and consequences, are the focus of this book. To understand the
genesis and consequences of these regulations requires some understanding
of the nature of biotech crops and attitudes toward them, and the role of
these attitudes in shaping regulations on laboratory development, field trials,
commercial farm use, international commodity trade, and final consumer
markets for food.
4.1.
Lack of Consumer Acceptance and Labeling Issues
Some consumers believe that GM foods are unsafe to eat, or that the proc-
esses used to produce them are environmentally unsafe. Consequently, they
8 REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY

may favor a labeling requirement or a ban on biotechnology (Huffman and
Rousu 2006, McCluskey, Grimsrud, and Wahl 2006). The coalition that sup-
ports regulation and restriction of biotechnology includes certain consumer
groups and environmentalists. Pressures by these groups and others have led
to segregation and labeling requirements (and even bans) of GM crops by
the European Union (EU) and other entities. This, in turn, has slowed adop-
tion and development of new crop biotechnologies.
4.2.
Substitution for Conventional Pest Control
An important potential benefit of agricultural biotechnology is the possibility
of displacing conventional resource-intensive agricultural technologies by
introducing pest-resistant genes and herbicide-tolerant genes. These new
technologies will allow a substantial reduction in the consumption of chemi-
cals,
labor, and energy, and also reduce the environmental burden of chemi-
cal pesticides. As with conventional chemical technologies, the development
of resistant pests or herbicide-tolerant weeds is an important potential conse-
quence of the adoption of biotech crops. To slow the buildup of resistance,
the U.S. government has imposed refuge requirements as part of its regula-
tory approval process for biotechnologies, but the policing of refuge require-
ments has been left largely in the hands of biotech companies and the
resulting compliance appears to be very low. The design of these regula-
tions,
and their impact on adoption and economic welfare, are the subject of
ongoing research (Mitchell and Hurley 2006, Langrock and Hurley 2006).
There is also some evidence that unchecked adoption without refuges can
potentially lead to more serious economic effects of secondary pests due to
eradication of primary pests that serve as predators (Wang, Just, and Pin-
strup-Andersen 2006).
4.3.

Regulatory Costs
Different sets of regulations govern the research and development process,
commercial release, and the commercial use of new agricultural biotechnol-
ogies depending on the type of biotechnology. For example, in the United
States, prior to the development and release of a new GM crop variety, a
biotech company must satisfy separately the regulations for registration and
approval from the EPA, the FDA, and the USDA. Obtaining these approvals
imposes substantial costs and delays in the development process (Kalaitzan-
donakes, Alston, and Bradford 2006). Some argue (for instance, Miller and
Conko 2004) that the requirements on the development of biotech crops are
more onerous than the corresponding requirements on development of crop
varieties by conventional techniques. Additionally, U.S. biotech firms may
seek regulatory approval abroad. The cost of compliance with international
INTRODUCTION AND OVERVIEW 9
regulations can detract from potential total profits associated with product
development and thus determine whether a product is introduced domesti-
cally. Analysis of these issues is crucial to the assessment of existing regula-
tions and proposals for reform.
4.4.
Noncompetitive Market Implications
Patent laws aim to achieve societal benefits from product development
through a balance between producer benefits from monopoly profits under
patent, and consumer benefits from post-patent competition. Imposing sub-
stantial regulatory costs on private companies can affect this
tradeoff.
One
possibility is to lengthen the patent period to offset regulatory costs and time
delays incurred by product developers. In the United States, such action has
been taken by Congress for pharmaceutical products but rejected for agri-
cultural chemicals and certain agricultural biotechnologies. Current regula-

tion of these items forces post-patent generic competitors to share in the
regulatory costs necessary to ensure product safety. But because generic en-
trants typically gain only a small share of competitive profits in a declining
market stage, imposing a substantial share of regulatory costs on generic
firms can be a major deterrent to generic entry and post-patent competition.
The result can be preservation of market power for product developers and a
postponing or elimination of the benefits of post-patent competition for
farmers and consumers (Just 2006).
4.5. Large-Crop, Large-Country Bias
Regulatory intervention and the substantial regulatory cost it imposes have
especially impeded development and adoption of food crops, minor crops,
and crops grown in small countries. The reason is that biotech firms require
a large potential market and a high rate of adoption to justify the large over-
head costs of regulatory compliance in addition to research and development
(Alston 2004, Bradford, Alston, and Kalaitzandonakes 2006). The fact that
various countries and market groups have different interests in such out-
comes may offer a partial explanation for differences in agricultural biotech-
nology policies among countries.
4.6. Comparative Advantage and Implications for International Trade
The introduction of agricultural biotechnology can favor one group of busi-
nesses over another. Groups that may lose from the technology may use their
political influence to support policies that will stall the spread of the tech-
nology. Anderson (2006) suggests that farmers in Europe as a whole would
be worse off if they had to compete in a world in which farmers worldwide
10 REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
were free to adopt, compared with a world without biotech crops. Hence,
European farmers might naturally oppose the development of biotech crops
generally. But Anderson also shows that European farmers can be even bet-
ter off if the adoption of biotech crops in other countries combined with op-
position to it in Europe leads to the erection of new regulatory barriers on

imports by the EU that amount to trade protection against competition from
both conventional and biotech crop producers. Graff and Zilberman (2004)
speculate that agricultural technology firms in Europe have a comparative
advantage in chemical technologies whereas agricultural technology firms in
the United States have a comparative advantage in biotechnology. Hence,
firms in Europe (perhaps in a coalition with European farmers) would op-
pose biotech and influence their governments to regulate accordingly,
whereas firms (and farmers) in the United States would do the opposite.
A possibly contradictory view is that regulatory compliance is a barrier
to entry, and that successful biotech firms in the United States have a com-
parative advantage in meeting the requirements (Heisey and Schimmelpfen-
nig 2006). The implication is that incumbent U.S. biotech firms may have
encouraged the introduction of more stringent and costly regulations so as to
preserve their market power. These questions become more complex upon
considering that the major firms are involved in both chemical technologies
and biotechnologies, that they are integrated with non-agricultural applica-
tions of biotechnology, and that they are multinational.
5. REGULATION OF U.S. AGRICULTURAL BIOTECHNOLOGIES
As the potential for genetically engineered products began to take shape, the
U.S.
government chose in 1986 to use existing health and safety laws to
regulate agricultural biotechnology under the Coordinated Framework for
Regulation of Biotechnology. As a result, federal regulation of agricultural
biotechnology in the United States today is scattered across three agencies in
three different departments with roles that are partially complementary and
in some cases overlapping.
The U.S. Department of Agriculture's Animal and Plant Health Inspec-
tion Service (APHIS) has jurisdiction over the planting of genetically engi-
neered plants and veterinary biologies; the U.S. Environmental Protection
Agency (EPA) has jurisdiction over pesticides engineered into plants, mi-

crobial pesticides, and novel microorganisms; and the Department of Health
and Human Services' Food and Drug Administration (FDA) has jurisdiction
over food and feed uses of biotechnology.
The laws under which agricultural biotechnology is regulated are the
Plant Protection Act (PPA), originally enacted in 1930, the Federal Food,
Drug, and Cosmetic Act (FFDCA), originally enacted in 1938, the Federal
INTRODUCTION AND OVERVIEW 11
Insecticide, Fungicide, and Rodenticide Act (FIFRA), originally enacted in
1947,
and the Toxic Substances Control Act (TSCA), originally enacted in
1976.
These laws have been modified by numerous amendments including
the Food Quality Protection Act (FQPA) of 1996. New regulations, rules,
and guidelines have been developed under each of these statutes in piece-
meal fashion by administering agencies to address issues for genetically en-
gineered products as they have arisen.
Under the authority of the PPA, APHIS regulations provide procedures
for obtaining a permit prior to developing or importing organisms altered or
produced through genetic engineering that are potential plant pests. The
FDA regulates foods and feed derived from new plant varieties and enforces
pesticide tolerances on foods under the authority of pre-existing food law in
the FFDCA, and requires that genetically engineered foods meet the same
rigorous safety standards as required of all other foods. If substances added
to food through genetic engineering are significantly different from sub-
stances currently found in food, then they are treated as food additives.
However, many food crops currently being developed using biotechnology
do not contain substances significantly different from those already in the
diet, and thus do not require pre-market approval.
The EPA regulates the distribution, sale, use, and testing of pesticidal
substances, including plant-incorporated protectants such as Bt, just as for

chemical pesticides. The EPA uses the authority of FIFRA to regulate the
distribution, sale, use, and testing of plants and microbes producing pesti-
cidal substances; the authority of the FFDCA to set tolerance limits for sub-
stances used as pesticides on and in food and feed (enforced by the USDA
on meat, poultry, and eggs, and by the FDA on other foods); and the author-
ity of TSCA to regulate GM microbial pesticides (microorganisms such as
bacteria, fungi, viruses, protozoa, or algae) intended for commercial use. In
the case of herbicide-tolerant crops, the EPA regulates the herbicide and
APHIS regulates the crop.
These various regulations clearly have dual purposes as evidenced by
Congressional records (see, for example. Just 2006). The purpose is not only
to protect human health and the environment by facilitating regulatory test
data generation and conditioning registration on each substance's health,
safety, and environmental effects. The purpose is also to administer those
regulations in a way that promotes social well-being and minimizes social
waste and disruption to an otherwise well-functioning market economy.
This book considers some of the potential differential effects of regula-
tions imposed by these laws and related agency rules on the competitive ef-
ficiency of regulated markets. In some cases, regulations appear to operate
relatively efficiently while in others they appear to lead to inefficiency. In
any case, the variety of laws and agencies regulating agricultural biotechnol-
ogies certainly leads to different types of regulations and regulations at dif-
12 REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
ferent levels of development depending on which agency and law is applica-
ble.
While agricultural biotechnology is likely still in its infant stage, the
variation in regulations and the scattering of their administration among
agencies appears to be partly explained by the motivations of private inter-
ests in biotechnologies and related lobbies, but also partly the result of sim-
ply extending the regulations of old policies when the Coordinated Frame-

work for Regulation of Biotechnology was adopted. Thus, the impact and
distributional consequences of current regulations on industry structure ap-
pear to be partly a result of political interests and partly the indirect conse-
quences of expedient approaches to law-making under uncertainty in an
evolving policy setting.
6. OVERVIEW OF THE BOOK, SYNTHESIS, AND SYNOPSIS
The remainder of the book is presented in three main parts, followed by a
concluding chapter. Part I is
entitled
Agricultural
Biotechnology
in the Con-
text of a
Regulated
Agricultural Sector, and it comprises a total of 10 chap-
ters.
It begins with four chapters that describe the consequences of regula-
tion. In Chapter 2, David Widawsky outlines the key elements of the regu-
latory framework administered by the EPA for agricultural biotechnologies
in the United States. In Chapter 3, Nicholas Kalaitzandonakes, Julian Alston,
and Kent Bradford describe the process of regulatory compliance for a new
biotech crop variety from the perspective of the biotech firm, and present
preliminary estimates of the costs of compliance. In Chapter 4, Bruce Gard-
ner describes the indirect and perhaps unintended incentives that traditional
farm programs have provided for technology adoption generally and sug-
gests that other technology policies including those for biotechnology, in-
cluding their questionable welfare implications, can be best understood in
the overall context of commodity policy interests. In Chapter 5, Stuart
Smyth, Peter Phillips, and William Kerr examine, as an alternative to the
regulatory approach, the prospect of ensuring safety through imposing strict

liability rules that induce firms to take socially appropriate precautions.
The next four chapters present results on measures of the benefits from
the adoption of biotech crops. In Chapter 6, Robert Evenson reports esti-
mates of annual benefits from the current level of adoption of biotech crops,
and the prospective benefits from full adoption of existing biotech crop va-
rieties, country by country and for the world as a whole. In Chapter 7, Kym
Anderson presents a detailed and more formal analysis of the benefits of
biotechnology for various countries based on a market model of interna-
tional trade, in which he shows the implications of various trade barriers and
other policies for the total benefits and their distribution. Evenson and
Anderson both show that the EU may have little to gain from worldwide
INTRODUCTION AND OVERVIEW 13
adoption of GM crops, but that EU non-acceptance of GM crops has adverse
implications for poor, food-deficient countries.
While Evenson and Anderson consider conventional measures of bene-
fits for the main crops, they do not consider various "hidden" benefits ac-
cruing to farmers or consumers. In Chapter 8, Michele Marra and Nicholas
Piggott consider one type of hidden benefit—non-pecuniary benefits to
farmers associated with greater convenience, farmer and worker safety, and
environmental advantages from biotech crops—and they discuss some
methodological issues associated with measuring these non-pecuniary bene-
fits. In Chapter 9, Felicia Wu addresses a different type of hidden benefit—a
lower incidence of mycotoxins in biotech crops, which means a lower rate of
human or animal health problems associated with ingestion of mycotoxins—
and presents empirical results on the importance of these benefits for the
United States and for developing countries. Wu's contribution is one of the
few to date that evaluates a genetically engineered attribute that primarily
benefits consumers. To date, agricultural biotechnologies have primarily
lowered producer costs, but the problem of consumer acceptance suggests
that future technologies may need to focus more on attributes of value to

consumers.
The last two papers in this part discuss consumer and market acceptance.
In Chapter 10, Wallace Huffman and Matt Rousu present a review of the
empirical literature on labeling and consumer acceptance issues. In Chapter
11,
Jill McCluskey, Kristine Grimsrud, and Thomas Wahl report on several
recent empirical studies showing that consumer acceptance depends on cul-
tural, religious, and political factors. They note the critical role of the media
in shaping consumer acceptance negatively, and discuss the issue of con-
sumer sovereignty (the right of the consumer to know) versus scientific sov-
ereignty (where science determines the safety standards).
The second main part of the book. Part II, is entitled Conceptual Issues
in Regulating Agricultural Biotechnology, and comprises nine chapters. It
begins with two chapters on the causes of regulations and their impacts. In
Chapter 12, David Zilberman discusses the role of various market distor-
tions—including monopoly power of biotech firms and positive externalities
from biotech products that lead to reduced use of pesticides—and the role of
distorted incentives for bureaucrats, both of which may contribute to causing
current regulations to be stricter than optimal. In Chapter 13, GianCarlo Mo-
schini and Harvey Lapan present a conceptual framework incorporating farm
production efficiency gains and consumer opposition with heterogeneous
consumers, to demonstrate an approach for evaluating the important issues
of GM labeling and potential market segregation.
Much of the rhetoric about biotechnology relates in some way to
environmental risk and the regulatory response to it. These issues are the
subject of the next three chapters. In Chapter 14, Erik Lichtenberg presents a
14 REGULATING AGRICULTURAL BIOTECHNOLOGY; ECONOMICS AND POLICY
framework for assessing the risk of bioteciinologies, wliich he uses to ex-
plain the importance of assessing not only risk (on average) but uncertainty
about risk. He also discusses the balance between prevention at the stage of

pre-market testing versus post-commercialization monitoring. In Chapter 15,
David Ervin and Rick Welsh discuss improving statistical standards for
testing biotechnologies, pointing out that risk will likely increase as virus-
resistant and more novel crops are developed. In Chapter 16, Sara Scatasta,
Justus Wesseler, and Matty Dement discuss the precautionary principle as it
affects EU policy related to biotechnology regulation.
The remaining four chapters in this section relate to imperfect competi-
tion in the markets for agricultural technologies and its implications for the
regulation of agricultural biotechnologies, drawing on evidence mainly from
the agricultural chemical industry. In Chapter 17, Richard Just presents em-
pirical evidence from pesticide regulation, suggesting regulatory issues that
should be considered for biotechnology policy. He shows how post-patent
competition can lead to 20-50 percent price reductions, which largely trans-
fer surplus from monopolistic developers (under patent protection) to farm-
ers and consumers (upon generic entry). But loopholes regarding the sharing
of regulatory testing costs between market developers and generic entrants
under FIFRA allow manipulation by original entrants in a way that discour-
ages or prevents generic entry. Thus, farmers and consumers receive only a
share of the benefits from innovation to which they are entitled under patent
policy. In Chapter 18, Vincent Smith presents survey results from cross-bor-
der comparisons of pesticide prices in Montana and Alberta that confirm
significant non-competitive pricing as suggested by Just's framework. In
Chapter 19, Paul Heisey and David Schimmelpfennig identify economies of
scope in regulation as the primary contributing factor for the emergent
dominance of the biotechnology industry by large firms, and note the role of
campaign contributions by large biotechnology firms as an explanation of
statutes that permit economies of scope in regulation. Finally, in Chapter 20
James Oehmke presents a simple framework to show that going off patent is
more important for social welfare than product innovation, and that a major
role for the public sector is to improve technology availability in the post-

patent stage—a reinforcement to the argument by Just.
The third main part of the book. Part III, is entitled Case Studies on the
Economics of Regulating Agricultural Biotechnology, and comprises 12 chap-
ters.
The first three chapters present international evidence on the regulation
of agricultural biotechnology either at the stage of innovation or in the final
market for the products. In Chapter 21, Colin Carter and Guillaume Gruere
give an account of the status of biotechnology regulation and innovation in
other developed countries, including Canada, Australia, and Japan, with an
emphasis on the role of segregation and labeling requirements. In Chapter
22,
Carl Pray and his co-authors discuss biotechnology regulation and
INTRODUCTION AND OVERVIEW 15
innovation in India and China, including a discussion of the regulatory proc-
esses and some estimates of the costs of regulatory compliance. In Chapter
23,
Jose Falck Zepeda and Joel Cohen provide similar results for other
developing countries, including various countries in Africa, Asia, and Latin
America.
The next five chapters relate to refuge policy and regulatory compliance
at the farm level. In Chapter 24, George Frisvold develops a conceptual model
to illustrate major issues in the choice of parameters of refuge policy, the trade-
off of EPA refuge requirements versus resistance buildup, and the depend-
ence of tradeoffs on local circumstances. In Chapter 25, Silvia Secchi,
Terrance Hurley, Bruce Babcock, and Richard Hellmich discuss the benefits
and costs of resistance management and refuge requirements in the case of
the European corn borer. In Chapter 26, Ines Langrock and Terrance Hurley
present resuhs showing that farmers' demand for Bt corn depends critically
on refuge requirements (to the extent they are enforced). In Chapter 27, Paul
Mitchell and Terrance Hurley present empirical results showing that non-

compliance with refuge requirements is widespread, and develop a conceptual
model that explains lack of proper incentives for biotech firms to monitor
compliance with refuge requirements effectively. In Chapter 28, Shenghui
Wang, David Just, and Per Pinstrup-Andersen present evidence from Chinese
agriculture showing that high levels of adoption without refuge requirements
can lead to secondary pest problems that are economically more serious than
the primary pest due to eradication of a natural predator pest.
The final four chapters in this part discuss the regulation of agricultural
biotechnology from the perspective of specific types of crops. Chapter 29 by
Richard Perrin covers field crops, which because of their predominance in
agricultural biotechnologies introduced to date, are also discussed in many
of the previous chapters in this volume. In Chapter 30, Greg Graff discusses
aspects of biotechnology regulation related to non-food crops. In Chapter 31,
Roger Sedjo discusses regulation of biotechnology as it applies to forestry.
And in Chapter 32, Kent Bradford, Julian Alston, and Nicholas Kalaitzan-
donakes discuss horticultural biotechnology regulation. These last three
chapters contain a number of common threads concerning the limited incen-
tives of biotech companies to develop products for niche markets (e.g., hor-
ticultural crops) or markets for which aggregate revenues are low (e.g., sta-
ple crops in developing countries). They also highlight the importance of the
biology of the plants as a factor that is not well reflected in the regulafions
(including the fact that backcrossing is not an option for some species and
that, compared with annuals, trees and other perennial crops raise different
issues).
Following Part III, we include a short chapter of conclusions by the edi-
tors.
It summarizes and synthesizes the main points and draws implications
for policy and further work in the area.
16 REGULATING AGRICULTURAL BIOTECHNOLOGY: ECONOMICS AND POLICY
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