The Economics of Testing for Biotech Grain: Application to StarLink Corn

StarLink corn, a biotech variety not approved for human food use, disrupted the marketing system in 2000 because of inadvertent commingling. Testing protocols have since been established for detection of StarLink in corn shipments to Japan. Domestic food manufacturers, anxious to avoid risks of contamination and product recalls, also test for StarLink kernels. This paper provides an overview of the economics of testing. What are the risks facing buyers and sellers, and how are these influenced by different testing protocols? How do market premiums and discounts, testing costs, and prior beliefs affect the incentives to test? A conceptual model is developed in which sellers can choose whether to pre-test grain prior to shipment. Simulation analysis is used to illustrate the impact of market premiums and other variables on testing incentives and buyer risk.