The Adoption and Diffusion of GM Crops in USA: A Real Option Approach

CEIS Tor Vergata, Research Paper Series, Vol. 8, No. 4, No. 169, July 2010

CEIS Working Paper No. 169

30 Pages Posted: 6 Aug 2010

See all articles by Sara Savastano

Sara Savastano

International Fund for Agricultural Development (IFAD); University of Rome Tor Vergata - Faculty of Economics; World Bank

Pasquale L. Scandizzo

University of Rome

Date Written: July 2010

Abstract

The paper aims at modeling adoption and diffusion decisions of farmers towards genetically modified crops under a real option framework. Modern GM crops help farmers to resolve two main sources of uncertainty: output uncertainty and input uncertainty. Those crops represent a revolutionary form of farming compared to the technology adoption studied in the literature in the late ‘70s-early ‘80s. The paper develops a theoretical model of adoption and diffusion of new GM crops under uncertainty and irreversibility. We test our theoretical predictions using data from 2000 to 2008 of a panel dataset constructed for 13 states of USA involved into the production of 4 different GM crop. These conclusions may appear to contradict the general perception of a delayed penetration for the GM crops, whose success seems to be retarded by lack of information, mistrust and an exaggerated perception of risks. GM crops tend to be invasive, in that their short term profitability is so high as compared with the investment needed, that once the hump of uncertainty is overcome, they operate a veritable takeover of agriculture.

Keywords: Adoption, Diffusion, Uncertainty, Irreversibility, Real Option

Suggested Citation

Savastano, Sara and Scandizzo, Pasquale Lucio, The Adoption and Diffusion of GM Crops in USA: A Real Option Approach (July 2010). CEIS Tor Vergata, Research Paper Series, Vol. 8, No. 4, No. 169, July 2010; CEIS Working Paper No. 169. Available at SSRN: https://ssrn.com/abstract=1653915

Sara Savastano

International Fund for Agricultural Development (IFAD) ( email )

Via Paolo di Dono
Rome, 00142
Italy

University of Rome Tor Vergata - Faculty of Economics ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy
+390672595639 (Phone)

World Bank

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

Pasquale Lucio Scandizzo (Contact Author)

University of Rome ( email )

Via Columbia, 2
Rome, I-00133
Italy
+3906/72595929 (Phone)
+3906/2040219 (Fax)

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