Spatial Dimension Of Externalities And The Coase Theorem: Implications For Co-Existence Of Transgenic Crops

"No form of agriculture should be excluded in the EU." Many observers see this recent statement by European agricultural commissioner Franz Fischler as a clear signal towards a nearby lifting of the quasi EU moratorium on transgenic crops (or GMs for short) launched in 1998 (European Commission 2002). One of the last obstacles towards lifting the moratorium, however, is the problem of coexistence. How can GM-crops and non-GM-crops coexist? Since the European Environmental Agency published its report on "Genetically modified organisms (GMOs): The significance of gene flow through pollen transfer" (EEA 2002) the debate focuses on the external effects that GM-farmers may cause to non-GM farmer if accidental pollen transfer takes place. While strong supporters of the GM technology argue that the current legislation is sufficient to deal with this problem (e.g. EuropaBio 2003), others demand strict liability rules for GM-farmer and those who distribute GM-crops. Furthermore, elaborated monitoring systems, GM-crop cadastre and other measures should be established according to their view (e.g. Greenpeace & Zukunftsstiftung Landwirtschaft 2003). The discussion on coexistence and private liability for GM-technology, however, is not limited to Europe. There is an ongoing debate in the United States, Canada, New Zealand and other countries (see e.g. Smyth, Khachatourians and Phillips 2002; Kershen 2002; Conner 2003). Thus, the governance of the future co-existence of GM-crops, conventional crops and organic crops is becoming a burning issue. This paper examines the current debate on co-existence from the perspective of Ronald Coase's influential paper "The Problem of Social Cost" published in 1960 (Coase 1960). Coase was very sceptical about the role of the government for resolving "harmful effects". He argued, first, that the traditional perception of the problem - making the polluter liable or taxing pollution - is misleading because it ignores the reciprocity of the problem. Second, he stated that if property rights are well defined and the costs of using the market to reallocate property rights are zero or close to zero, the allocation of resources will be independent of the initial distribution of rights. This statement became to be known as the Coase Theorem (see Cooter 1991; Posner 1993). Third, Coase noticed that if the costs of using the market to reallocate property rights are not close to zero, all institutional alternatives or governance structures must be evaluated in a comparative way, including the "costs involved in operating the various social arrangements" (Coase 1960: 44). This contribution will basically proceed in the logic of Coase´s paper but will highlight on the possible implication of the Coase-Theorem for the governance of co-existence and its implications for the spatial allocation of GM and non-GM crops. First, we characterize the problem of co-existence as a problem of social cost that can be solved institutionally as well as technically. Second, we analyze the impact of different property rights structures on the adoption of GM crops and on the value of GM and non-GM production. We will show that under certain assumptions the adoption of GM crops will be independent from the allocation of property and liability rights. In this case technical and managerial solutions may be adopted to solve the problems of co-existence. However, the values of different production systems are highly affected by the allocation of liability rights. Fourth, the implications of those for the spatial allocation of GM and non-GM farms are discussed.