Biotechnology Adoption Over Time In the Presence of Non-Pecuniary Characteristics that Directly Affect Utility: A Derived Demand Approach
Abstract
Generally, new production technologies are adopted because
they will increase profits, mostly due to lower production costs
ceteris paribus. In the case of the first-generation crop biotechnologies,
however, additional factors play a role. These factors
affect the utility functions of individual producers directly, as well
as possibly affecting their utility functions indirectly through profits.
This article considers the effect that embodied non-pecuniary
factors have on the derived demand for a new, firstgeneration
crop biotechnology over time. We show that the
derived demand for the biotechnology will increase (shift out) at
first and then begin to become more inelastic to price increases
as adopters get accustomed to, and value more highly, the nonpecuniary
benefits. We consider the convenience embodied in
the Roundup Ready® soybean system as an example. Then, as
empirical support for the transformation of the elasticity of
derived demand, we examine Roundup Ready® soybean system
costs and adoption over the period 1996-2007. The data
suggest that, despite recent increases in the system costs of the
technology, adoption continued to increase, signaling a relatively
inelastic demand response.
Citation
AgBioForum, 11(1) 2008: 58-70.