How do GM / non GM coexistence regulations affect markets and welfare?

This paper presents a theoretical economic model assessing the effect of the level of mandatory geneticallymodified (GM) / non-GM coexistence regulations on market and welfare outcome. We assumevertical differentiation of GM and non-GM goods on the consumer side. Producers are heterogeneousin their cost savings from GMO adoption. Producers of non-GM crops face a probability of having theirharvest downgraded if gene flow from GM fields makes its GMO content above the labeling threshold.The government may impose to GMO producers mandatory ex ante isolation distances from non-GMfields in order to decrease the probability of non-GM harvest downgrading. It may also introduce an expost compensation to non-GMO farmers for profit losses due to harvest downgrading, imposing GMOfarmers’ participation to a compensation fund via a tax on GM seeds. Assuming endogenous cropchoices and prices, we study the effects of ex ante regulation and ex post liability of GMO producers onmarket equilibrium as well as on global and interest group welfare.