Mitchell, Paul D.; Hurley, Terrance M.; Babcock, Bruce A.; Hellmich, Richard L.

Journal of Agricultural and Resource Economics Vol. 27 (2002): 390-405.

We compare subsidies and fines to voluntary and mandatory refuge insurance (insurance for pest damage on Bt corn refuge) as mechanisms for securing grower compliance with EPA refuge mandates. A conceptual model partially ranks mechanisms. We empirically quantify tradeoffs between mechanisms using grower welfare, payments to growers, and monitoring frequency. Grower welfare is lowest with mandatory insurance, since growers pay all costs, and highest with direct refuge subsidies, since public funds or companies subsidize all costs. Assuming typical premium loads and ignoring distribution considerations, we develop monitoring budgets for fines and subsidies, above which voluntary or mandatory insurance is better.

Key words: biotechnology, European corn borer, refuge insurance, resistance management