The Optimal Time to License a Biotech “Lemon”

W. H. Furtan, Richard Gray and J. J. Holzman

Contemporary Economic Policy, 2003, vol. 21, issue 4, 433-444

Abstract: Genetically modified (GM) wheat is an example of an irreversible technology that will cause environmental and market externalities. The optimal time to license this irreversible technology is examined using real options theory. Given the likely spread of the GM wheat genetics in the environment, the decision to license and adopt GM wheat will increase future herbicide costs for both adopters and nonadopters. Also, without the ability to segregate GM and non‐GM varieties, the market price of wheat is reduced for all producers. This creates a licensing dilemma due to the “lemon” characteristics of the new technology. (JEL Q18, D62)

Date: 2003
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