Description:

Matteo Ruzzante: Price Regulation of Agricultural Technology (joint with Felipe Berrutti)

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 and decreased the costs of cultivating cotton by 20%. Although cotton seed firms did not incur significant losses in the short term, the number of new hybrid varieties introduced by these firms fell abruptly in the aftermath of the policy, leading farmers to use older seeds. Using newly assembled data from experimental field trials across India, we show that: (i) cotton varieties lose 6% of their yield yearly; (ii) 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. We use this model to study the welfare impact of the policy through comparisons with estimated counterfactual outcomes under no price controls.