On the Demand for a State-Contingent, Cost-Saving Seed Trait

David A. Hennessy, Alexander E. Saak
December 2002  [02-WP 321]

Biotechnology has enriched the strategy set available to crop managers. Suppose a manager faces a decision between applying a pre-emergence pesticide or applying nothing at all. The advent of pesticide tolerance traits in plants admits the possibility of a state-contingent post-emergence application of pesticide. The innovation adds value in large part because it provides the manager with the option to wait for more information. For heterogeneous acre types, the determinants of trait royalties and of crop management strategies in equilibrium are studied. Pest resistance traits have different implications for crop management. Whereas a tolerance trait likely complements information technologies, the addition of a resistance trait may substitute for them.

Keywords: genetic trait, information inputs, patent value, real option.

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