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Journal of Agricultural and Resource Economics


Numerous genetically modified (GM) traits are currently under development. Those currently being developed for corn include traits for drought tolerance, cold tolerance, and nitrogen use efficiency, among others. The value of these traits is random and sporadic, creating challenges in assessing its ex ante value. This study estimates the ex ante value of a GM trait in corn with random characteristics. A real option model is developed to capture risks and returns associated with the traits, and estimates are derived for drought tolerant corn. Base case results indicate a slight chance that the option value would be out-of-the-money during the discovery phase. In all other phases, the expected value is in-the-money. The results are highly sensitive with respect to trait efficiency and regarding assumptions of randomness in some of the other important variables, particularly trait values.


Copyright 2013 Western Agricultural Economics Association

Published in the Journal of Agricultural and Resource Economics

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