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Consumer Acceptance of GM Potatoes in Ireland: An Experimental Auction Approach

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).

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Consumer Acceptance of GM Potatoes in Ireland: An Experimental Auction Approach

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  1. Consumer Acceptance of GM Potatoes in Ireland: An Experimental Auction Approach Funded by Department of Agriculture and Research Stimulus FundDavid LoughranUCD & Teagasc Walsh Fellow Dr. Michael Wallace (UCD), Dr. Fiona Thorne (Teagasc) & Dr. Sean Fox (Kansas State University)

  2. Presentation Outline • Background and Motivation • Methodology & Experimental Design • Provisional Results • Conclusions

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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

  8. Posted Bidding

  9. 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.

  10. 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 – 47 • Rural – 42 • Farm – 7

  11. 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

  12. Results Continued

  13. Results based on Household • 47 Urban households • Average bid of -€0.14 • 7 bidders omitted, bids in excess of -€1.50 • 42 Rural Households • Average bid of -€0.36 • 11 bidders omitted, bids in excess of -€1.50

  14. 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

  15. 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???

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