Labeling Regulations and Segregation of First- and Second-Generation Genetically Modified Products: Innovation Incentives and Welfare Effects

GianCarlo Moschini, Harvey E. Lapan
April 2005  [05-WP 391]

We review some of the most significant issues and results on the economic effects of genetically modified (GM) product innovation, with emphasis on the question of GM labeling and the need for costly segregation and identity preservation activities. The analysis is organized around an explicit model that can accommodate the features of both first-generation and second-generation GM products. The model accounts for the proprietary nature of GM innovations and for the critical role of consumer preferences vis-à-vis GM products, as well as for the impacts of segregation and identity preservation and the effects of a mandatory GM labeling regulation. We also investigate briefly a novel question in this setting, the choice of "research direction" when both cost-reducing and quality-enhancing GM innovations are feasible.

Keywords: identity preservation, labeling, market failure, product differentiation, welfare.

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