Innovation and IPRs for Agricultural Crop Varieties as Intermediate Goods
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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.