Innovation and IPRs for Agricultural Crop Varieties as Intermediate Goods

Abstract

This paper analyzes the effects of varying appropriability or strength of IPRs for agricultural seeds. The paper is motivated by the agricultural sector in which an innovator uses genetic resources to produce new crop varieties to be marketed to a farm sector that exhibits heterogeneity in its ability to profit from the innovation. Farmers are modelled as heterogeneous producers, purchasing seed from an innovating monopolist in a vertical product differentiation framework. The effects of IPRs on innovation are endogenized and the welfare of consumers assessed through the price for food. The theoretical analysis reveals some novel aspects of the traditional innovation versus diffusion tradeoff. Less productive producers, and also consumers, are better off with a moderate level of appropriability and lower level of innovation. The model is extended to a two country setting consisting of North and South.