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United States Department of Agriculture

Agricultural Research Service

Title: Insuring the Stewardship of Bt Corn: a Carrot Versus a Stick

Authors
item Mitchell, Paul - TEXAS A&M
item Hurley, Terrance - UNIV. OF MINNESOTA
item Babcock, Bruce - IOWA STATE UNIVERSITY
item Hellmich, Richard

Submitted to: Journal of Agricultural and Resource Economics
Publication Type: Peer Reviewed Journal
Publication Acceptance Date: November 1, 2002
Publication Date: December 5, 2002
Citation: MITCHELL, P.D., HURLEY, T.M., BABCOCK, B.A., HELLMICH II, R.L. INSURING THE STEWARDSHIP OF BT CORN: A CARROT VERSUS A STICK. JOURNAL OF AGRICULTURAL AND RESOURCE ECONOMICS. 2002. V. 27. P. 390-405.

Interpretive Summary: Several types of genetically-engineered plants have been produced that kill insects when they feed on crops. Scientists and crop producers are excited about these plants because they offer an effective way to kill pest insects without conventional chemical insecticides. Reduced chemical usage translates into less surface and ground water contamination. Dramatic control of insects on these plants, however, has many scientists concerned about insects becoming resistant to these plants. Scientists have developed a high-dose refuge strategy to combat insect resistance, but some growers may not want to plant refuges because refuge crops on average are less productive and more risky. This paper evaluates crop insurance as an economic tool that could be used to motivate growers to plant refuges. In particular, we compared subsidies and fines to voluntary and mandatory refuge insurance (insurance for pest damage on Bt corn refuge) as mechanisms for securing grower compliance with EPA refuge mandates. A conceptual model partially ranks mechanisms. We empirically quantified tradeoffs between mechanisms using grower welfare, payments to growers, and monitoring frequency. Grower welfare is lowest with mandatory insurance, since growers pay all costs, and highest with direct refuge subsidies, since public funds or companies subsidize all costs. Assuming typical premium loads and ignoring distribution considerations, we developed monitoring budgets for fines and subsidies, above which voluntary or mandatory insurance is better. These results provide important information to scientists and policy makers who are concerned with managing pest resistance to transgenic crops. Prolonging the value of these crops will benefit companies that produce these plants as well as growers and consumers.

Technical Abstract: Transgenic crops could revolutionize the way pest insects are managed. Dramatic control of pest insects on these plants, however, has many scientists concerned about insects becoming resistant to these plants. Scientists have developed a high-dose refuge strategy to combat insect resistance, but some growers may not want to plant refuges because refuge crops on average are less productive and more risky. This paper evaluates crop insurance as an economic tool that could be used to motivate growers to plant refuges. In particular, we compared subsidies and fines to voluntary and mandatory refuge insurance (insurance for pest damage on Bt corn refuge) as mechanisms for securing grower compliance with EPA refuge mandates. A conceptual model partially ranks mechanisms. We empirically quantified tradeoffs between mechanisms using grower welfare, payments to growers, and monitoring frequency. Grower welfare is lowest with mandatory insurance, since growers pay all costs, and highest with direct refuge subsidies, since public funds or companies subsidize all costs. Assuming typical premium loads and ignoring distribution considerations, we developed monitoring budgets for fines and subsidies, above which voluntary or mandatory insurance is better.

Last Modified: 10/19/2014
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