Welfare Effects of Identity Preservation and Labelling of Genetically Modified Food

Using a simple model of the world canola market, this paper explores the consequences of the introduction of GM canola on prices, production and consumer welfare. In particular, the model contains heterogeneous consumers who differentiate between GM and non-GM canola, but who can be captured by the GM market if the price discount for GM is sufficiently large. This leads to market segmentation, with the size of price differentials determined by identity preservation costs. A particular feature of the model is the appropriate measurement of consumer welfare changes when the novel good is seen as inferior. The ability of the technology provider to extract rents through the use of technology fees is also explored, and the implications for market equilibrium and social welfare identified.