Monday, November 22, 2010

The economic benefits of transgenic maize and the free rider problem

Maize field after harvest
Recently I read in a Dutch newspaper an article about the economic effects of the cultivation of genetically manipulated maize, in this case Bt corn. Bt corn produces a toxin that is poisonous to the European corn borer, one of the pests of corn. According to the article, a study on the effects of Bt corn in the Midwest of the USA published in Science showed that also on fields where non-manipulated corn was grown the population of the European corn borer decreased with 28 till even 73 percent. The introduction of Bt corn in the region has led to an economic benefit of 6.9 milliard dollars since 1996. However, almost two third of the benefit falls to farmers who do not cultivate Bt corn, but they do not have to pay for the license.
Coen van Wagenberg from Wageningen University speaks here of a free rider effect. Usually a free rider is defined as a person who profits by a public resource without paying a fair share in its costs. You live in an area protected by dikes but don’t want to pay the land draining rates from which the dikes are paid. You take the train but don’t buy a ticket. When there are too many free riders, dikes will not be constructed, public transport will not ride any longer for lack of money and everybody suffers, including the free rider. Therefore the state forces everybody to pay his share and tries to catch fare dodgers. In van Wagenberg’s view, also farmers who do not cultivate Bt corn in a region where other farmers do: The former take advantage of what the latter do, but they do not pay for the costs. The free market, so van Wagenberg, does not work here. Therefore the state must interfere and make that everybody in a region where transgenic maize is grown pays his share in the costs.
At first thoughts the argument seems reasonable: everybody profits by transgenic maize, so everybody has to pay for it. But is this really a case of free riding? I think it is not. Actually the arguments turns the world upside down and it limits freedom in the name of freedom. For does a person have to pay for his neighbour’s decisions?
I live in a terraced house. In winter I set the thermostat of my central heating on 19oC, while my neighbours left and right prefer 21oC. Then warmth flows through the walls to my house and my heating costs are reduced a bit. I profit by what they pay for their heating. Must I pay my neighbours then in order to equalize my benefit? I guess that nobody would get the idea. Everybody is free to choose how warm or cold his house will be and if a neighbour will have it warmer, she must accept that some warmth goes to the neighbour next-door.
I see here no fundamental difference with the case of growing transgenic maize. It involves as little a free rider problem as the case of me warming my house. In fact it is not the “free riding” farmer who undermines the free market as suggested in the article but the farmer growing transgenic maize and those on his side. Maybe some farmers try to profit by what their neighbours grow, but other farmers are simply against growing transgenic plants because of the harmful effects for nature and men’s health of genetic manipulation. It is a matter of private choice that is not comparable to profiting by the protection of dikes or not buying a train ticket. You cannot help that your neighbour chooses to grow Bt maize, like that you cannot help that your next-door neighbour will have her house warmer. The core of the problem whether or not the state must interfere here is not the functioning of the free market, but whether one can force a private person to pay a share in the costs that other private persons have because of their private decisions, so that the costs are fairly shared by all who have the benefits. Growing Bt corn is not a public good, just as making cars isn’t. The problem is an ethical one about freedom of choice and not about unfair competition in a supposedly free market. And it is also about the ethically acceptability to manipulate plants genetically and having persons pay for it who are against it.

4 comments:

Simon said...

I also heard of US farmers who don't use it being sued when it turns up in their fields. Or that they lose their organic status because some gets in their crop. Or when the toxic crop residue ends up in the waterways, or other weeds, or insects get resistant and cause even greater problems to all. So rather than a free rider it can often be at a real cost.

I do take your point though, my intuition is that if you cause me harm then you should pay a price but then by the same principle if I get a gain should I then pay a price?

The problem is that this can be seen in society in general; a new business opens in town supplying services that increases economic activity to all businesses in town. If we are to pay for benefits then by rights all locals and business should pay a fee. But is that practical because that new business itself could have got benefits from somewhere else. Where would it end? At least as far as cost it is usually a simpler case to see the one to one causal factors.

HbdW said...

Hello Simon,
Thank you for your reaction. I think that it is an important contribution to thinking about what the implications can be if we want to let "free riders" pay for the benefits they receive, when they haven't asked for them.
As for the fact that we have to pay when we cause damage but not when we receive benefits, I have discussed it already a bit in my blogs of Feb. 23, 2009 and later. I understand that you forgot that ;). Moreover, it was a bit in another context. But maybe it is worth another blog or series of blogs.
Henk

Simon said...

Henk that would be good. I would point out though that being a complex developed society means that you can be thought of as a free rider in many respects as even if you currently pay taxes you are reaping the benefits of past investments.

Also what about historical wrongs? People in many developed ex-colonial powers are benefiting from past colonial exploitation of other peoples. Haiti is a good example, not only were they screwed over by the French but the US –in league with corrupt local elites- has destroyed much of the local economy for replacement US imports.

What does the average US or French citizen -or Australian or UK for that matter- owe for past wrongs to people whose descendents still exist?

HbdW said...

Hello Simon,
What all this makes clear is that having gains and benefits from your relations of other people is very basic. Maybe we live on it. Therefore, you must be very careful to claim for compensation in case of gains and benefits. Only in cases of outright damage and when someone is unmistakenly a free rider. If not,it would harden social relations a lot with all the negative effects.
Henk