The Adoption Decision And Its Implication

The determination of the optimal pesticides for each variety provides the base for the variety choice. Let the gain from adoption of the local GMV be

~ w(xa -xm)~ (80-8m)Fp - F and the gain from adopting the generic variety be o Fm

NB0h[ x

Let i* be the indicator of the optimal variety, z* = m if An™ > 0 and Aw™ > An§',i* = g if An% > 0 and An§ > An™', and /* = o otherwise. The farmer will adopt the local modified variety if it is more profitable then the other two (if An™ >0 and An™ > Anf>'). The conditions for the adoption of the generic GMV are similar. We saw that under reasonable conditions the adoption of the local GMV increases output, so from (7) and (8) the likelihood o f adopting the local GMV increases with output price, potential output, the fixed and variable cost of the pesticides, the initial pest pressure, and the effectiveness o f GMVs in eliminating pests. The generic GMV may reduce yield, so its main advantage over the local GMV may be lower fixed costs. Actually, higher output prices and potential output may reduce the likelihood of adoption of the generic GMV, and they make it less profitable relatively to both traditional and GM local varieties. The likelihood of adoption of the generic GMV increases as the potential output loss due to transition away from the local variety decreases and pesticide-use costs rise, especially the fixed costs.

A GMV is adopted if the gains in terms of increased value of output and saving of pesticide cost is greater than the extra costs of the seeds. It is important to distinguish between situations when adoption is mostly associated with increased yield vs. situations when it is associated with

pesticides or pesticide cost saving. Let ey = —-be the yield effect of y0

the adoption of GMV, and let £x =-— be the pesticide-saving effect x0

of adopting a GMV (x* = 0 when £*=0), and let pc w(xg-x** ) + (50-8.*)Fp

£ =-----be the pesticide cost- saving effect of x0 + S0Fp x PC

adopting GMVs. Both e and e are nonnegative, since adoption of GMVs does not increase pesticide use or expense, but e^may be negative if the generic GMV is adopted. When the generic variety is adopted, its impact on yield is y - y ■ Its adoption has a positive yield effect when the yield loss due to the transition from the local variety is smaller than the yield gain due to reduced pest damage.

The behavior of optimal pesticide use and output under the three varieties of technologies suggest that ( Ij when the price of pesticides relative to output (w/p) and the fixed cost of pesticides are low, adoption of the local GMV has a small yield effect (£y is close to 0), but adoption of GMV has a significant pesticide-saving effect. (2) When the price of pesticides relative to output is high and the fixed cost of pesticides is substantial, the adoption of the local GMV has a substantial yield effect and some pesticide-saving effect.

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