CEDE Seminar - Matteo Ruzzante

Regulating the price of existing technologies can spur their adoption yet deter subsequent innovation. In India, price controls on genetically engineered (GE) cotton seeds induced this trade-off. Leveraging the policy’s differential timing across states, we show that mandated price reductions accelerated adoption of GE seeds by farmers. Although seed supply kept pace, innovation subsequently stalled: fewer new varieties were introduced. Using newly assembled data from experimental field trials across India, we show that agronomic yields of new varieties fell in price-controlled states. To quantify the welfare implications of price and yield effects, we develop and estimate a structural model of demand and supply for seeds with endogenous product attributes. While the policy raised farmers’ surplus, especially among the poor, ignoring innovation responses in equilibrium vastly overstates their welfare gains. We use the estimated model to assess alternative policies that better balance adoption and innovation incentives. For a given public budget, incentives for seed developers tied to the productivity of new varieties achieve the highest welfare for farmers.