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.