Consumer Acceptance of GM Potatoes in Ireland: An Experimental Auction Approach Funded by Department of Agriculture and Research Stimulus Fund David Loughran UCD & Teagasc Walsh Fellow Dr. Michael Wallace (UCD), Dr. Fiona Thorne (Teagasc) & Dr. Sean Fox (Kansas State University) Presentation Outline Background and Motivation Methodology & Experimental Design Provisional Results Conclusions Introduction GM Potato Co-existence project “Enhancing management practises to maintain the sustainability of current potato systems” Economic analysis to determine the likely demand and price implications of introducing a GM blight resistant potato to the Irish market at consumer level. Methodology Vickrey Auction • • • • • Valuation Studies – alternative/compliment to CV Theory still in infancy – pioneered by Shogren, Hayes and Fox in the 90’s. Aim is to simulate a market place for non-market goods Non-hypothetical – using real money, real goods, real auctions and repeated participation with information on market prices. Therefore creating a valuation environment with tangible incentives. Incentive Compatible Auctions Incentive compatibility • The auction induces each bidder to submit a bid • • that sincerely reflects his/her value for the good. Separates value from market price, since market price is independent of ones bid, there is no gain from strategic bidding. Bidding less than one's true value only reduces the chance of winning at what would have been a profitable price, while bidding more than one's true value increases the chance of winning but at a price that exceeds one's value. Approaches to Auction Endowment approach • Endowed with one product and bid on an • upgrade/downgrade from this to another product. The difference in value between the two products is estimated by the bids for the upgrade. Nth Price Auction A 3rd price auction • The 2 highest bidders in the auction will exchange their product for the alternative and pay the 3rd highest price We play 4 rounds of the auction • Each time bids the posted on the board • In subsequent rounds individuals can update their bids based on this market information • At the end a binding round is chosen at random Posted Bidding Experimental Auction Endowment Approach • Give each participant a 2.5kg bag of conventionally grown Irish potatoes (market price €2.50). • They then participate in an auction to exchange their bag of potatoes for a bag of GM blight resistant potatoes. • They submit bids representing the difference in the value to them of the GM potatoes relative to the Conventional potatoes • For example: If a person has a preference for conventional potatoes they submit a negative WTA bid. If a person has a preference for GM potatoes they submit a positive WTP bid. If they are indifferent they bid zero. Sample The sample was developed by placing advertisements in local newspapers. Applicants were screened to assess their suitability. Applicants were unaware of the nature or topic of the study before the experiments took place. 96 participants • Split by Household • • • Urban – Rural – Farm – 47 42 7 Provisional Results Initial Preference bids (based on cut off extreme bid level of -€1.50) • • -€0.26 average bid value, 10.4% discount required on market price. 23 bidders omitted – 24% of sample would not accept GM at any level of discount. Bids based on cut off point of -€2.50 • • -€0.41 average bid value – 16.4% discount 13 bidders omitted – 13.5% would not accept GM Results Continued Accept GM 15.4 Reject GM 45.8 14.6 Indifferent 23.4 Willing to Pay a Prem ium Results based on Household 47 Urban households 42 Rural Households • Average bid of -€0.14 • 7 bidders omitted, bids in excess of -€1.50 • Average bid of -€0.36 • 11 bidders omitted, bids in excess of -€1.50 Results Information Benefits After round 2 we provided participants with an information sheet detailing the potential benefits GM potato could have in terms of health and the environment. Health Benefit Info • Led to increase of average bid to €0.06 Environmental Info • Led to increase of average bid to €0.01 Conclusions Provisional results look promising for GM potato production. Results are in line with existing literature (10% discount on GM products). Results are only provisional Thank you for your attention Any Questions???