The International Consortium on Agricultural Biotechnology Research (ICABR)
Biotechnology: Private Benefits and Social Risks
Odin K. Knudsen, World Bank, Washington DC,
Pasquale L. Scandizzo, Tor Vergata University, Italy
The core of the biotechnology debate is about benefits and risks. Scientist and experts are trying to derive evidence of the relative weights of benefits and hazards emerging from the application of biotechnology advances. Since hazards are potential threats to society in general and to biodiversity, the state has a role in regulating the industry and setting social standards for the potential consequences of biotechnological discoveries.
Because the benefits of biotechnology are largely captured by the sellers of the technology but the hazards fall on society, governments need to impose safeguards and seek compensation for the potential adverse consequences. Similarly, the business promoting biotechnology must account for the uncertainties that an adverse consequence would have on their contractual rights to propagate the technology.
In this paper, we analyze the potential benefits and risks associated with an uncertain consequence of the introduction of a biotechnological advance. We postulate a contractual relationship between the state and private business where, in exchange for a negotiated payment, society grants the right to market the biotechnological advance. However, the contract is contingent to the fact that the adverse consequences do not exceed some maximum social standard. Private business has to take into account four factors of this contingent contract on its decision to proceed with the biotechnological agent. The first is the level of payment to the state, the second is the cost factor represented by the option to revoke the contract, the third is the uncertain time horizon for the benefit stream and the fourth is the uncertain future benefits. The state in turn has to establish an acceptable social standard and negotiate a minimum payment.
Using a dynamic stochastic framework, the paper shows how the social standard and the terms of the contract affect the time horizon for the benefit stream and the decision to proceed with the biotechnological advance.