Transcript The Economics of GM Potato Crop Production: An Irish Case

Consumer Acceptance of GM
Potatoes in Ireland: An
Experimental Auction
Approach
Funded by Department of Agriculture and Research
Stimulus Fund
David Loughran
UCD & Teagasc Walsh Fellow
Dr. Michael Wallace (UCD), Dr. Fiona Thorne (Teagasc)
& Dr. Sean Fox (Kansas State University)
Presentation Outline
 Background
and Motivation
 Methodology & Experimental
Design
 Provisional Results
 Conclusions
Introduction
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
GM Potato Co-existence project
“Enhancing management practises to
maintain the sustainability of current
potato systems”
Economic analysis to determine the
likely demand and price implications of
introducing a GM blight resistant potato
to the Irish market at consumer level.
Methodology

Vickrey Auction
•
•
•
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Valuation Studies – alternative/compliment to CV
Theory still in infancy – pioneered by Shogren, Hayes
and Fox in the 90’s.
Aim is to simulate a market place for non-market
goods
Non-hypothetical – using real money, real goods, real
auctions and repeated participation with information
on market prices.
Therefore creating a valuation environment with
tangible incentives.
Incentive Compatible Auctions

Incentive compatibility
• The auction induces each bidder to submit a bid
•
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that sincerely reflects his/her value for the good.
Separates value from market price, since market price
is independent of ones bid, there is no gain from
strategic bidding.
Bidding less than one's true value only reduces the
chance of winning at what would have been a
profitable price, while bidding more than one's true
value increases the chance of winning but at a price
that exceeds one's value.
Approaches to Auction

Endowment approach
• Endowed with one product and bid on an
•
upgrade/downgrade from this to another
product.
The difference in value between the two
products is estimated by the bids for the
upgrade.
Nth Price Auction
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
A 3rd price auction
• The 2 highest bidders in the auction will exchange
their product for the alternative and pay the 3rd
highest price
We play 4 rounds of the auction
• Each time bids the posted on the board
• In subsequent rounds individuals can update their
bids based on this market information
• At the end a binding round is chosen at random
Posted Bidding
Experimental Auction

Endowment Approach
• Give each participant a 2.5kg bag of conventionally grown
Irish potatoes (market price €2.50).
• They then participate in an auction to exchange their bag of
potatoes for a bag of GM blight resistant potatoes.
• They submit bids representing the difference in the value to
them of the GM potatoes relative to the Conventional
potatoes
• For example: If a person has a preference for conventional
potatoes they submit a negative WTA bid. If a person has a
preference for GM potatoes they submit a positive WTP bid.
If they are indifferent they bid zero.
Sample

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The sample was developed by placing advertisements in
local newspapers.
Applicants were screened to assess their suitability.
Applicants were unaware of the nature or topic of the
study before the experiments took place.
96 participants
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Split by Household
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Urban –
Rural –
Farm –
47
42
7
Provisional Results

Initial Preference bids (based on cut off
extreme bid level of -€1.50)
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•

-€0.26 average bid value, 10.4% discount required on
market price.
23 bidders omitted – 24% of sample would not accept
GM at any level of discount.
Bids based on cut off point of -€2.50
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•
-€0.41 average bid value – 16.4% discount
13 bidders omitted – 13.5% would not accept GM
Results Continued
Accept GM
15.4
Reject GM
45.8
14.6
Indifferent
23.4
Willing to Pay
a Prem ium
Results based on Household

47 Urban households

42 Rural Households
• Average bid of -€0.14
• 7 bidders omitted, bids in excess of -€1.50
• Average bid of -€0.36
• 11 bidders omitted, bids in excess of -€1.50
Results Information Benefits

After round 2 we provided participants with an
information sheet detailing the potential
benefits GM potato could have in terms of
health and the environment.

Health Benefit Info

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Led to increase of average bid to €0.06
Environmental Info
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Led to increase of average bid to €0.01
Conclusions
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Provisional results look promising for GM
potato production.
Results are in line with existing literature
(10% discount on GM products).
Results are only provisional
Thank you for your attention
Any Questions???