Aggregate effects: Adopters and non-adopters, investors and consumers

Economists have been studying the aggregate (market-level) effects of new agricultural technologies for a long time (Alston et al., 1995). Innovations often reduce the cost of production, increasing supply among adopters. This increased production in turn reduces output price. The standard approach of analysis has been to apply methods of welfare economics to calculate estimates of consumer and producer surplus. This is often done in simple models with one commodity and one or two regions. Despite its simplicity, this approach can estimate the distribution of net gains of innovation between producers and consumers and between adopting and non-adopting regions. It can also measure effects of technological spillovers and competition between regions (Edwards and Freebairn, 1984). Analyses have also accounted for interactions with agricultural income support and trade policies (Alston et al., 1988, 1995). Three factors have changed the way economists assess the aggregate and distribution effects of agricultural innovations. The first pertains to the agricultural innovation process in general and biotechnologies in particular. The private sector has surpassed the public sector in many developed countries in agricultural research and development (R & D) investment. Private technology suppliers usually hold patents or other forms of intellectual property protection, allowing them to exercise some degree of monopoly power - charging higher prices and capturing profits by supplying innovations. Earlier economic studies tended to ignore such monopoly rents in estimating the returns to research and innovation.