Benefit Sharing Mechanisms for Genetic Biodiversity Conservation: a Multistage Game Between Local...

Benefit Sharing Mechanisms for Genetic Biodiversity Conservation: a Multistage Game Between Local Owners and Multinational CompaniesAlessio D’Amato, Giacomo Pallante, Wenjuan ChengUniversity of Rome Tor Vergata

ICABR 2015, June 16-19, Ravello, Italy

Outline

ICABR 2015, Ravello D’Amato A., Pallante G., Wenjuan C.2/20

i. Background and motivationii. Research questioniii. Conceptual frameworkiv. The modelv. Results vi. Conclusions

Background - some facts


Bioprospecting - Exploration of biodiversity for new genetic resources (GR) of social value (carried out by pharmaceutical, cosmetics, agricultural industries).

Source: Artuso (2002)Agro-Biodiversity loss - Biodiversity is the source of bioprospecting. Need of sharing benefits of bioprospecting with who “conserve” the diversity.Since the beginning of the Green Revolution, the number of the worldwide consumed crop varieties have gradually decreased and, currently, only four crops provide 60 percent of human food energy (FAO, 2010).

Background – Access and conservation: the international regime


Biodiversity loss R&D (bioprospecting)

State sovereignty over tangible and intangibleCBD, BG, Nagoya

Tangible VS Intangible (plant) (knowledge)Property rights Intellectual property (patent)

TRIPsGlobal legal protection (under NDUS) Access and Benefit Sharing Mechanisms and sui generis agreements

Background – agreements: some examples


Background – local owners’ incentives


Farmers in developing countries selected and cultivated for centuries an incredible mix or rare local landraces (Altieri, 1999). These are genetically variable and thus provides farmers with a differentiated and resilient crop portfolio against agricultural risks (Di Falco et al., 2010) The availability of attractive genetic traits, incentivizes bioprospecting multinational to use these genetic resources to develop new modern varieties, which being patented, are more genetically standardized (Koopman, 2005; Bellon, 2004). With the aim of increasing productivity, farmers adopt the new varieties on their land, thereby reducing the local agro-biodiversity (Weitzman 2000, Pascual and Perrings, 2007)

Background - Literature


Feder (1980), define the base framework of the optimal land allocation under uncertainty on the performance of a new technology Risk minimization VS Yield maximization. Goeschl and Swanson (2002), develop a model when the genetic resource is the essential input of the biotechnology sector. The industry underestimates the value of GR because is not taken into account the marginal benefits deriving from enlarging the set of conserved GR for still unknown future needs. Sarr et al. (2008) provide a review of how modelling the R&D option value of GR : the value depends on beliefs concerning the ability of current objectives to anticipate future risks and uncertainties. Markandya and Nunes (2010) analyse the optimal compensation that the bioprospecting multinational should pay to local community for accessing their GR.

Research question


We add to previous researches by investigating the effect of two benefit sharing (monetary and technology transfer) mechanisms on the agricultural genetic conservation. The main contribution is analyzing the direct effect that the production and commercialization of the new product, based on local GR, has on the choice of land allocation by the local community, and indirectly, the impact on the loss of future benefits from potential further bioprospecting.

The Conceptual Framework – a graphical representation


Local OwnerF

Multinational

Sample of genetic resourceSample fee

I (R&D)

Global market

L

Market price

F-LShare of benefits or technology transfer

The Conceptual Framework - the game


Stage 0: Access to genetic resourcesGiven the policy for accessing the genetic resources, the local owner decides if accept the policy rule.Stage 1: Investment and price The multinational decides the level of investments to obtain the new product and the related market price. The larger the investment, the higher the quality of the product as well as the global and local demand.Stage 2: Land allocationThe local owner decides the amount of land to allocate to the new product observing the quality and the price and having expectations on its productivity.Stage 3: Option valueThe payoffs are observed. The multinational might adjust the choice in terms of price and investments by observing the local owner land allocation and the resultant reduction in future bioprospecting activities.

The Model – Free Access


A) Local Owners.t.L = Local demand of new varietyy = unit revenue of new variety = variance of farmers’ revenue according to state of the world (quality of new variety)= probability of having a bad state of the world (-1)1- = probability of having a good state of the world (1)c = unit cost of inputs for the new variety = Price of seeds of new variety = Unit revenue from old varietiesB) Multinational

P = I-W , W=L+D so L+D=I-P = Inverse Demand FunctionI = Investment on new variety development (proxy for probability of the state of the world) = unit cost of investment = future discounted revenues from remaining genetic resources

1L)1(2

))1((max2

LRPLLchIIhyLEU

L

rLI

PIPM aIP

)1(2

)(max2

,

Results


Last StagePayoff realizedThird StageThe local owner observes quality and prices and allocates land

With andSecond StageThe multinational anticipates land allocation and sets optimal quality and price

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The Model – Benefit Sharing (monetary)


A) Local OwnerT =lump-sum transfer for access to genetic resourcesβ = share of revenues (benefit sharing mechanisms)

B) Multinational

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Results


Third Stage

Second Stage

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The Model – Technology transfer


A) Local Ownerϕ = Technology transfer parameter (knowledge to use the new product)

B) MultinationalResults

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Comparative static


The effect of policies

β + - -

ϕ - - +

Results - discussion


The increases of monetary benefit sharing produces a better GR conservation. The multinational compensates the higher costs with lower investments. This produces a decreases in current revenues that is compensated with an higher prices so as to keep the share of revenues non decreasing The variation of land allocated to new variety is negative since both price and investments disincentive the shift to the new variety. An higher transfer of technology pushes farmer to allocate more land on new variety. To counterbalance the loss of future revenues, the multinational decreases quality and compensates the loss of current demand by decreasing price (with no share of revenues). In this case the effect of price reduction is larger than the quality reduction and the final allocated land increases with the share of technology.

Results – Comparison between instruments


0 ma II 0 ma PP ma LL

na LL 0 na PP0 na II

man LLL

Monetary

Technology transfer Diversity conservation

Conclusions


The multinational, when account properly for current and future bioprospecting activities, linked to unexploited genetic resources, moves strategically the price and quality of new product in order to incentivize the local owner decisions on agro-biodiversity conservation. The quality always decreases under the presence of policies. The introduction of a benefit sharing mechanisms, produces an higher conservation of biodiversity because the multinational reacts decreasing the investments thereby incentivizing the local owner to keeping cultivating the local GR. The transfer of technology is likely to constraint local owner in using the new variety, especially if combined with an increasing share of knowledge. In this case the policy can lead to less land for biodiversity because the multinational does not need to share profits with farmers and thus produces products at lower prices.

Further steps


Introducing risk aversion in farmers current revenues through the decision on optimal agricultural inputs (farmers strategically would allocate land to obtain better quality?)Better characterization of option value terms for multinational and also local owners (function of previous investments?).

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