THE OPTIMAL TIME TO LICENSE AN IRREVERSIBLE BIOTECHNOLOGY:
AN EXAMPLE FROM THE CANADIAN WHEAT INDUSTRY

Hartley FURTAN (University of Saskatchewan, Canada)
R. S. GRAY (University of Saskatchewan, Canada)
J. J. HOLZMAN (University of Saskatchewan, Canada)

We demonstrate large potential gains can be earned through the licensing and adoption of GM-HT wheat varieties. The capitalized rents earned from this new technology are in the range of $175-$300 per acre. In 2001, this rent is equal to the price of cropland for many farmers in western Canada, and therefore represents an attractive option. The distribution of the gains between producers and the innovating firm depends upon the ability of the innovating firm to act as a monopolist and the cost of segregating GM-HT wheat from traditional wheat varieties. The real option value of the new wheat technology, and thus the decision to license the new wheat varieties, depends upon whether the government considers the change in revenue of both the suppliers of the new technology and producers, or only the change in producer revenue. The results in this paper show there is considerable value in waiting to license GM-HT wheat from the producers perspective, given that segregation is currently not possible at a cost that producers would pay and still be better off with the new technology. We show that introducing a competing technology reduces the amount innovating firms can charge producers. With a competing technology available there is a value in waiting to release GM-HT wheat from both society and the producers perspective.