Description:

Felipe Berrutti and Matteo Ruzzante

"Price Regulation of Agricultural Technology" 

Abstract: Regulating the price of productivity-enhancing inputs can allow governments to facilitate the diffusion of existing technologies but deter private firms from investing in innovation and introducing superior technologies. This project studies the demand and supply-side consequences of price controls on genetically engineered (GE) cotton seeds in India. Leveraging the differential timing and intensity of this policy across states, we show that the government-mandated price reduction increased farmers’ adoption of GE seeds by 20pp. Using newly assembled data from experimental field trials across India, we show that agronomic yields of new varieties worsen by 30% in price-controlled states. We develop and estimate a structural model of demand and supply of cotton seeds to quantify the welfare impact of these price and quality responses. Preliminary results indicate that the policy increased aggregate farmer surplus. Importantly, we show that ignoring endogenous quality adjustments substantially overstates the policy's impact on welfare.