Team:HZAU-China/eco/2

From 2014.igem.org

(Difference between revisions)
(Created page with "<!DOCTYPE html> <html> <!--[if lt IE 7]> <html class="no-js lt-ie9 lt-ie8 lt-ie7" lang="en"> <![endif]--> <!--[if IE 7]> <html class="no-js lt-ie9 lt-ie8" lang="en"> <![endif]...")
 
(9 intermediate revisions not shown)
Line 108: Line 108:
<link rel="shortcut icon" href="images/favicon.ico" />
<link rel="shortcut icon" href="images/favicon.ico" />
-
 
+
<script type="text/x-mathjax-config">
 +
    MathJax.Hub.Config({tex2jax: {inlineMath: [['$','$'], ['\\(','\\)']]}});
 +
</script>
 +
<script type="text/javascript" src="http://cdn.mathjax.org/mathjax/latest/MathJax.js?config=TeX-AMS-MML_HTMLorMML"></script>
<!-- //      Javascript Files        // -->
<!-- //      Javascript Files        // -->
Line 148: Line 151:
         <!-- logo start here -->
         <!-- logo start here -->
         <div id="logo-left">
         <div id="logo-left">
-
             <a href="https://igem.org/Team.cgi?year=2014&team_name=HZAU-China"><img src="https://static.igem.org/mediawiki/2014/b/bb/Hazuteamlogo918.png" alt="HZAU-China" /></a>
+
             <a href="https://igem.org/Team.cgi?year=2014&team_name=HZAU-China"><img src="https://static.igem.org/mediawiki/2014/4/4c/Hzau-home-lllogo.png" alt="HZAU-China" /></a>
         </div>
         </div>
         <!-- logo end here -->
         <!-- logo end here -->
Line 164: Line 167:
                 <li class="dropdown"><a href="https://2014.igem.org/Team:HZAU-China/Project">Project</a>
                 <li class="dropdown"><a href="https://2014.igem.org/Team:HZAU-China/Project">Project</a>
    <ul>  
    <ul>  
 +
                        <li><a href="https://2014.igem.org/Team:HZAU-China/Design"><span>-</span>Overview</a></li>
                         <li><a href="https://2014.igem.org/Team:HZAU-China/Background"><span>-</span>Background</a></li>
                         <li><a href="https://2014.igem.org/Team:HZAU-China/Background"><span>-</span>Background</a></li>
-
<li><a href="https://2014.igem.org/Team:HZAU-China/Design"><span>-</span>Design overview</a></li>
 
<li><a href="https://2014.igem.org/Team:HZAU-China/Input"><span>-</span>Input module</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Input"><span>-</span>Input module</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Processing"><span>-</span>Processing module</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Processing"><span>-</span>Processing module</a></li>
Line 174: Line 177:
<li class="dropdown"><a href="https://2014.igem.org/Team:HZAU-China/Review">Wetlab</a>
<li class="dropdown"><a href="https://2014.igem.org/Team:HZAU-China/Review">Wetlab</a>
                     <ul>  
                     <ul>  
-
                        <li><a href="https://2014.igem.org/Team:HZAU-China/Overview"><span>-</span>Overview</a></li>
+
                        <li><a href="https://2014.igem.org/Team:HZAU-China/Overview"><span>-</span>Overview</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Construction"><span>-</span>Construction</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Construction"><span>-</span>Construction</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Characterization"><span>-</span>Characterization</a></li>
<li><a href="https://2014.igem.org/Team:HZAU-China/Characterization"><span>-</span>Characterization</a></li>
 +
                        <li><a href="https://2014.igem.org/Team:HZAU-China/Help"><span>-</span>Help each other</a></li>
                         <li><a href="https://2014.igem.org/Team:HZAU-China/Protocol"><span>-</span>Protocol</a></li>
                         <li><a href="https://2014.igem.org/Team:HZAU-China/Protocol"><span>-</span>Protocol</a></li>
-
                         <li><a href="https://2014.igem.org/Team:HZAU-China/Labnotes"><span>-</span>Labnotes</a></li>  
+
                         <li><a href="https://2014.igem.org/Team:HZAU-China/Labnotes"><span>-</span>Labnotes</a></li>    
                     </ul>
                     </ul>
                 </li>
                 </li>
Line 243: Line 247:
</section>
</section>
<!-- breadcrumb end here -->
<!-- breadcrumb end here -->
 +
<p>&nbsp;&nbsp;</p>
 +
<h2 align=center>The Four Types of Possible GMO Market Condition</h2>
<!-- maincontent start here -->
<!-- maincontent start here -->
Line 249: Line 255:
         <div class="eleven columns">  
         <div class="eleven columns">  
         <div class="offset-by-one columns">
         <div class="offset-by-one columns">
-
<h2 align=center>Overview</h2>
 
-
<h5>In this part, we have:</h5>
 
-
<strong><li>thoroughly demonstrated four types of markets that GMO could end up with, which is also what potential synthetic biology products might meet one day;<strong>
 
-
<strong><li>utilised analytical tools from game theory, a branch of information economics;</strong>
 
-
<strong><li>evaluated our method by looking at its assumptions and found, to our dismay, the unwarranted ground of rationality;</strong>
 
-
<strong><li>and spoke of its implication for policy making in the future.</strong>
 
-
<h5>Overview</h5>
+
 
-
<p class="highlighttext">A common analogy for what synthetic biologists are doing is "vehicle constructing" or "car constructing". What our team has designed in our project is a step toward the "bacteria amphibious vehicle", or "bacteria transformer". As our project has a somewhat "fundamental" aura about it that might lead to a slight or tremendous shift of perspective in synthetic biology's future, we think perhaps it's yet too early for concrete policy suggestions concerning something that's still in its infancy.
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Before presenting the four types of possible GMO markets, we have some assumptions to make, some of which are to simplify questions.
 +
 
</p>
</p>
-
<p class="highlighttext"> However, not giving concrete policy suggestions doesn't mean we should be doing nothing. Instead, even more should be done in preparation for what policy need that may arise in the future. Such as, on what ground should these policies be made.
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
-
</p> 
+
First, assume that the value of a GMO contains solely of one factor, the safety condition. Namely, we assume that the consumers only worry about the safety conditions of GMOs, so as long as the GMO is safe, it has value.
-
<p class="highlighttext">Synthetic biologists may one day want to market their proud products like GMOs. But instead of rushing into the deep waters of the market, many things should be considered beforehand, and perhaps concerns should be more than optimism in all time. Evaluating potential market state is one of these concerns, and since synthetic biology products are yet to put in much appearances in the market, we can look at how its more mature cousin GMO has been faring so far. From the various accounts of many papers that studied the GMO market, we get a rough picture. By their account, if use one word for a generalization of the market state of GMO, it would be "fiasco". (for more detail, see our report)
+
 
-
  </p> 
+
-
<p class="highlighttext">Almost all the scholars who made policy suggestions used cases such as Zimbabwe's rejection of GMO aid, EU's restriction of GMO trade and many people's GMO-reluctance as evidences of the "failure" state of GMO market, and many deduced that, one reason for such failure is because GMO is a "Lemon Market", which, according to the Nobel Prize Winner G.Akerlof, is the market instance when the inferior commodity gradually take over the market because of information asymmetry.
+
-
  </p> 
+
-
<p class="highlighttext">Therefore, many policies suggestions are aimed at promoting the information symmetry between the "knowledge giving" party and the "general public". Safety tests are spoken of as something just like a necessary procedure and nothing more than a procedure, like a cookbook. Any GMO just need to follow its steps one by one, and it will pass, and it will be safe; and people's rejection of this safe-claimed product will be a sign of ignorance or "information asymmetry" and need to be "helped". Safety tests should be "ensured", so the safe ones will not suffer wrongly because of those unsafe ones whihc turned the market into a "lemon", despite the possibility that the tests themselves might be doubtable.
+
</p>
</p>
-
<p class="highlighttext">We trust that most of the policy makers at least attempt to wield justice in their policies. However, attempting to do so doesn't guarantee succeeding in doing so. The almost one-sided undertone prevailing in the academic circles that has the \textit{a priori} assumption of the validity of "strict" safety tests shows the hubris side of science, or scientists. For how are they so sure that there is not an information asymmetry between themselves and their biological products, or rather, between science and nature?
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Second, we omit the difference of GMO companies and GMO sellers and GMO developers, and call them by ``GMO seller''.
 +
 
</p>
</p>
-
<p class="highlighttext">Because our project this year chose the Track of information processing, we were extra-sensitive on anything that contain the word "information", including "information economics".
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Third, we assume that both the GMO sellers and the GMO consumers follow sequential rationality [23], namely, they all expect maximum payoff in every one of their choice.
 +
 
</p>
</p>
-
<p class="highlighttext">Many scholars claim the GMO markets to be failing, but theoretical demonstration nor detailed description is not given Perhaps it's because they think it's too obvious for them and that a step-by-step demonstration might look schoolbook-like. However, we don't think anyone aside from those who have strong background in economics will understand the details, so, in our report, we thoroughly described four types of markets that GMO could end up with by utilising analytical tools from game theory, a branch of information economics, to construct the context in which "the failing market" is spoken of, as a first step. Serious scholars of economics could skip it as an "education" section for people from other disciplines and just go ahead.
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Fourth, we assume that the information is complete, which means that, both the sellers and the consumers know the type, strategies and payoffs of each other.
 +
 
</p>
</p>
-
<p class="highlighttext">Then, we made a summary of six large-sample surveys about people's attitudes toward GMO done across the globe in different countries and areas by former scholars, as an empirical evidence from which the scholars draw support of their claim.
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Fifth, we assume that consumers are perfectly rational (to know more about the word rationality, see [24] or [25]), so their belief of the GMO safety condition could be said to reflect the intrinsic safety condition of said GMO.
 +
 
</p>
</p>
-
<p class="highlighttext">And then we analysed the assumptions made at the beginning when we are laying the outline of this whole context, and found out the fallibility of one assumption which could lead to potential inversion of the verdict: the rationality assumption, which has been demonstrated by behavioral economists to be fallible.  
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
We can draw the outline of these four types of markets under the above assumptions.
 +
 
</p>
</p>
-
<p class="highlighttext">That rationality could be fallible has been realized by people, but knowing something doesn't equal to doing by its creed. This important discovery of the behavioral economists are not put into practice enough, I'm afraid; at least not when it comes to the policy concerns of GMO.  
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
 
 +
<img src="https://static.igem.org/mediawiki/2014/1/1f/Jueceshu.jpg"  width="500px" class="img-center"/>
 +
 
</p>
</p>
-
<p class="highlighttext">So, finally, we will quote the ending paragraphs of our report as a reminder for potential GMO policy makers.
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Suppose that there are roughly two kinds of GMOs, one that is intrinsically safe whose value is $A$, another that is intrinsically not so safe and may be hazardous whose value is $B$, and $A>B$. Since any consumer will want to buy the safe products and not the unsafe, so any seller of GMO will try to make the product as safe-looking as possible; and since the consumers cannot tell which category the product belongs to by simply looking at it in the market, the seller of the unsafe product will be able to pull off as the safe, and therefore the safe and unsafe products all share the same level of price $P$, but pretending to be safe will generate a certain cost of $W$, and $A>P>B$. The probability of consumer $x$ believing that GMO $y$ being safe is $p_{safe}$, the probability of consumer $x$ believing GMO $y$ to be unsafe is $p_{unsafe}$ ($x$ and $y$ being random). If we further assume that the consumers are perfectly rational, then their belief could be said to reflect the virtual safety condition of GMO.
 +
 
</p>
</p>
-
<p class="highlighttext"><span style="font-style:italic;"> "No one can claim truth when Truth is undefined, so there will always be confliction from two different sides. Instead of trying to convert the other to one’s side, both sides should actually listen to each other and collaborate to deepen the understanding of the matter that lies at the heart of the confliction. And as for the truth, both sides better be saying: ``Let time decide.''
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
-
</span></p>
+
And a decision tree could be drawn:
-
<p class="highlighttext"><span style="font-style:italic;">   And before more is revealed in the course of time, we better hope for the best but assume the worst. After all, better be safe than sorry, and policy makers should look inward and examine their innermost beliefs for any bias that may just be lurking under their attempts, albeit sincere, for justice."
+
 
-
</span></p>
+
</p>
-
<h5><a href="">1.Motivation</a></h5>
+
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
-
<h5><a href="">2.The Four Types of Possible GMO Market Condition</a></h5>
+
According to Shiyu Xie, the market equilibrium of a game under complete but imperfect information can be divided into four types by market efficiency: total failure, total success, near failure, partial success [22]. The four types of market are determined by the parameters $A$, $B$, $C$, $p_{safe}$, and $p_{unsafe}$.
-
<h5><a href="">3.Empirical Data—Surveys done between 2000 and 2004</a></h5>
+
 
-
<h5><a href="">4.The Unwarranted Rationality Groundfor Policy Making Related to Market Failure</a></h5>
+
</p>
 +
<h5>2.1 Partial Success<h5>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Suppose that the consumer believes that the probability of unsafe GMO occurring in the market $p_{unsafe}$ is small. Suppose, however, that the pretending cost of the unsafe product $C$ is also very small comparing with the selling price $P$. This is to say that the unsafe products can easily sneak into the market without much additional cost while the consumers trust and are optimistic about the GMO market.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
The consumer’s payoff $\pi$ if he decides to buy a certain GMO will then be $p_{safe}(A-P)+p_{unsafe}(B-P)$. since $A>P>B$ and here we suppose that $p_{unsafe}$ is small, then $\pi>0$. If the consumer decides not to buy, then his payoff will be that $\pi=0$. So as long as the GMO is sold, he will choose to buy it.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Now back trace to the GMO seller’s decision. Because the above track of decision routes can be deducted by the GMO sellers, they will know that their products can be sold if they choose to sell it. So, will they? If its product is safe, the payoff for selling it will be $P$, $P>0$, which is the payoff if it chooses not sell, and its rational choice will be to sell. If its product is not safe, then the payoff of selling will be $P-C$, which is still greater than $0$ since $C$ is assumed to be small, so it will still choose to sell it.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
In this situation, the GMO sellers will sell their products regardless of their virtual safety condition, and the consumers will buy whatever that is presented to them by these sellers.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
In a GMO market like this, the conducts of the sellers do not reflect the safety condition of the GMO they sell, however, since the unsafe GMOs are not very prevailing (small $p_{unsafe}$), the buyers and sellers both can have a positive payoff in most times, though the consumers can sometimes stumble upon the unsafe GMO.
 +
 
 +
</p>
 +
 
 +
<h5>2.2 Total Success</h5>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Now suppose that it will be very, very costly for the GMO sellers to put an unsafe GMO into the market, whether by sneaking it in, or by some unintentional mistakes in the censoring procedures, all in all $P<C$.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Therefore, if the seller sells the unsafe GMO, it will be costly, and the payoff will be negative, i.e. $P-C<0$. If the GMO seller is rational, then it will not choose to sell it. So $p_{safe}=1$ and $p_{unsafe}=0$. Since it’s a game under complete information, the consumer knows it too. When they are making the choice of buy or not to buy, the payoff of buying as they perceive it will be $\pi=1\cdot (A-P)+0\cdot (B-P)=A-P>0$, while the payoff of not buying is $0$. Therefore, rational consumers will choose to buy the GMO.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
In this situation, all GMOs sold are safe GMOs, and the unsafe GMOs will not gain entrance to the market, so the consumers can freely buy any GMO without worrying about its safety condition, and the social welfare is at its maximum. If there IS any GMO, that is. Because certain GMOs could be banned by the government so it could be that only the ``unsafe GMO will not gain entrance to the market'' part stands valid.
 +
 
 +
</p>
 +
<h5>2.3 Near Failure</h5>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Two conditions must stand valid for the market to be near failure: first, the cost of ``cover up'' for the unsafe GMO does not exceed its price, $P>C$; second, the consumer expects loss entering the market, i.e. $p_{safe}(A-P)+p_{unsafe} (B-P)<0$. In this condition, if only pure strategies (e.g. buy or not to buy) are employed, the market will reach its dismal state, where no consumer will buy GMO and therefore no seller would sell it. This is the situation of total market failure which will be discussed later.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
So instead of pure strategy, mixed strategies[26] will be employed here, which is to say, the seller will sell the GMO when it’s safe (with probability 1), and sell the GMO with a probability of $\alpha$ when the GMO is unsafe; and the consumer decides with a probability of $\beta$ whether or not to buy said GMO. According to Bayesian law[27], the conditional probability of GMO being safe when the seller chooses to sell is:
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
\begin{equation}
 +
p({safe}|{sell})=\frac{p_{safe}\cdot p({sell}|{safe})}{p_{safe}\cdot p({sell}|{safe})+p_{unsafe}p({sell}|{unsafe})}
 +
\end{equation}
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
And the payoff $\pi$ when the consumer chooses to buy is
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
\begin{equation}
 +
\pi=p({safe}|{sell})(A-P)+p({unsafe}|{sell})(B-P).
 +
\end{equation}
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Xie Shiyu has proved that the mixed strategies of both the seller and buyer in near failure markets like this can pass the test of sequential rationality [22], i.e.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
\begin{equation}
 +
\pi_{buy}=\pi_{not buy}
 +
\end{equation}
 +
 
 +
and
 +
 
 +
\begin{equation}
 +
\pi_{sell}=\pi_{not sell}
 +
\end{equation}
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Therefore, it means that the seller of safe GMO can only sell it with a probability which is not $1$.
 +
 
 +
</p>
 +
<h5>2.4 Total Failure</h5>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
The four types of market can be determined either by the payoffs, i.e. $C$ and $P$, or in many situations, directly deducted by the buyer according to his own experience or other factors.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
If, due to various reasons, the consumer has somehow reached the conclusion that the GMOs sold in the market are all unsafe, then his $p_{safe}=0$, $p_{unsafe}=1$. The payoff if the consumer chooses to buy is $0\cdot (A-P)+1\cdot (B-P)=B-P<0$, so the consumer will not choose to buy. So the seller’s payoff will be $–C$ is he sells, smaller than $0$, the payoff if he chooses not to sell. So he will not choose to sell. The market is in its total failure.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
``Lemon'' can mean ``second hand goods'' or ``goods that are not so good'' in the American slang, the concept of Lemon Market was first introduced into economic theories by the Nobel winner George. A. Akerlof in his essay The Market for ``Lemons'': Quality Uncertainty and the Market Mechanism where he explains the market failure caused by information asymmetries and externalities, illustrated with the example of the second-hand car market [28]. In the GMO market, information asymmetry means that the sellers can tell safe from unsafe while consumers cannot, because safe and unsafe goods look similar.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
In a GMO lemon market, the highest price a consumer is willing to pay will not exceed the value (in this case we assume it solely means safety conditions) he expects of the GMO product, and the expected safety condition of a product is the weighted average of both the safe and unsafe products [29]. Choosing so will result in a gradual withdrawal of the safe GMO sellers from the market, because the average price in the market is lower than the value his products possess.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
As this happens, the ratio of the safe products in the market will gradually drop, and the highest price the consumer is willing to pay will drop further with the downfall of consumer’s expectation of the product, resulting in the withdrawal of GMO products which are of relatively high quality.
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
This kind of adverse selection will make the market end up filled with the worst kind of GMO. Therefore, unless consumers are willing to buy this kind of GMOs, the market fails spectacularly.
 +
 
 +
 
 +
</p>
 +
<p class="highlighttext">&nbsp;&nbsp;&nbsp;&nbsp;
 +
Before getting a second look at the five assumptions or getting a closer look at the four types, let’s look at some surveys done by former scholars to have some understanding on consumers’ real attitudes towards GMOs across the world in recent years.
 +
 
 +
</p>
 +
 
 +
 
 +
 
 +
 
-
<p class="highlighttext">A pdf Version of our Report is <a href="https://static.igem.org/mediawiki/2014/a/a0/Economics_overview.pdf"><strong>here</strong></a></p>
 
   <div class="clear"></div>
   <div class="clear"></div>
         <div class="divider"></div>
         <div class="divider"></div>

Latest revision as of 02:36, 18 October 2014

<!DOCTYPE html> 2014HZAU-China

Economics

  

The Four Types of Possible GMO Market Condition

     Before presenting the four types of possible GMO markets, we have some assumptions to make, some of which are to simplify questions.

     First, assume that the value of a GMO contains solely of one factor, the safety condition. Namely, we assume that the consumers only worry about the safety conditions of GMOs, so as long as the GMO is safe, it has value.

     Second, we omit the difference of GMO companies and GMO sellers and GMO developers, and call them by ``GMO seller''.

     Third, we assume that both the GMO sellers and the GMO consumers follow sequential rationality [23], namely, they all expect maximum payoff in every one of their choice.

     Fourth, we assume that the information is complete, which means that, both the sellers and the consumers know the type, strategies and payoffs of each other.

     Fifth, we assume that consumers are perfectly rational (to know more about the word rationality, see [24] or [25]), so their belief of the GMO safety condition could be said to reflect the intrinsic safety condition of said GMO.

     We can draw the outline of these four types of markets under the above assumptions.

    

     Suppose that there are roughly two kinds of GMOs, one that is intrinsically safe whose value is $A$, another that is intrinsically not so safe and may be hazardous whose value is $B$, and $A>B$. Since any consumer will want to buy the safe products and not the unsafe, so any seller of GMO will try to make the product as safe-looking as possible; and since the consumers cannot tell which category the product belongs to by simply looking at it in the market, the seller of the unsafe product will be able to pull off as the safe, and therefore the safe and unsafe products all share the same level of price $P$, but pretending to be safe will generate a certain cost of $W$, and $A>P>B$. The probability of consumer $x$ believing that GMO $y$ being safe is $p_{safe}$, the probability of consumer $x$ believing GMO $y$ to be unsafe is $p_{unsafe}$ ($x$ and $y$ being random). If we further assume that the consumers are perfectly rational, then their belief could be said to reflect the virtual safety condition of GMO.

     And a decision tree could be drawn:

     According to Shiyu Xie, the market equilibrium of a game under complete but imperfect information can be divided into four types by market efficiency: total failure, total success, near failure, partial success [22]. The four types of market are determined by the parameters $A$, $B$, $C$, $p_{safe}$, and $p_{unsafe}$.

2.1 Partial Success

     Suppose that the consumer believes that the probability of unsafe GMO occurring in the market $p_{unsafe}$ is small. Suppose, however, that the pretending cost of the unsafe product $C$ is also very small comparing with the selling price $P$. This is to say that the unsafe products can easily sneak into the market without much additional cost while the consumers trust and are optimistic about the GMO market.

     The consumer’s payoff $\pi$ if he decides to buy a certain GMO will then be $p_{safe}(A-P)+p_{unsafe}(B-P)$. since $A>P>B$ and here we suppose that $p_{unsafe}$ is small, then $\pi>0$. If the consumer decides not to buy, then his payoff will be that $\pi=0$. So as long as the GMO is sold, he will choose to buy it.

     Now back trace to the GMO seller’s decision. Because the above track of decision routes can be deducted by the GMO sellers, they will know that their products can be sold if they choose to sell it. So, will they? If its product is safe, the payoff for selling it will be $P$, $P>0$, which is the payoff if it chooses not sell, and its rational choice will be to sell. If its product is not safe, then the payoff of selling will be $P-C$, which is still greater than $0$ since $C$ is assumed to be small, so it will still choose to sell it.

     In this situation, the GMO sellers will sell their products regardless of their virtual safety condition, and the consumers will buy whatever that is presented to them by these sellers.

     In a GMO market like this, the conducts of the sellers do not reflect the safety condition of the GMO they sell, however, since the unsafe GMOs are not very prevailing (small $p_{unsafe}$), the buyers and sellers both can have a positive payoff in most times, though the consumers can sometimes stumble upon the unsafe GMO.

2.2 Total Success

     Now suppose that it will be very, very costly for the GMO sellers to put an unsafe GMO into the market, whether by sneaking it in, or by some unintentional mistakes in the censoring procedures, all in all $P

     Therefore, if the seller sells the unsafe GMO, it will be costly, and the payoff will be negative, i.e. $P-C<0$. If the GMO seller is rational, then it will not choose to sell it. So $p_{safe}=1$ and $p_{unsafe}=0$. Since it’s a game under complete information, the consumer knows it too. When they are making the choice of buy or not to buy, the payoff of buying as they perceive it will be $\pi=1\cdot (A-P)+0\cdot (B-P)=A-P>0$, while the payoff of not buying is $0$. Therefore, rational consumers will choose to buy the GMO.

     In this situation, all GMOs sold are safe GMOs, and the unsafe GMOs will not gain entrance to the market, so the consumers can freely buy any GMO without worrying about its safety condition, and the social welfare is at its maximum. If there IS any GMO, that is. Because certain GMOs could be banned by the government so it could be that only the ``unsafe GMO will not gain entrance to the market'' part stands valid.

2.3 Near Failure

     Two conditions must stand valid for the market to be near failure: first, the cost of ``cover up'' for the unsafe GMO does not exceed its price, $P>C$; second, the consumer expects loss entering the market, i.e. $p_{safe}(A-P)+p_{unsafe} (B-P)<0$. In this condition, if only pure strategies (e.g. buy or not to buy) are employed, the market will reach its dismal state, where no consumer will buy GMO and therefore no seller would sell it. This is the situation of total market failure which will be discussed later.

     So instead of pure strategy, mixed strategies[26] will be employed here, which is to say, the seller will sell the GMO when it’s safe (with probability 1), and sell the GMO with a probability of $\alpha$ when the GMO is unsafe; and the consumer decides with a probability of $\beta$ whether or not to buy said GMO. According to Bayesian law[27], the conditional probability of GMO being safe when the seller chooses to sell is:

     \begin{equation} p({safe}|{sell})=\frac{p_{safe}\cdot p({sell}|{safe})}{p_{safe}\cdot p({sell}|{safe})+p_{unsafe}p({sell}|{unsafe})} \end{equation}

     And the payoff $\pi$ when the consumer chooses to buy is

     \begin{equation} \pi=p({safe}|{sell})(A-P)+p({unsafe}|{sell})(B-P). \end{equation}

     Xie Shiyu has proved that the mixed strategies of both the seller and buyer in near failure markets like this can pass the test of sequential rationality [22], i.e.

     \begin{equation} \pi_{buy}=\pi_{not buy} \end{equation} and \begin{equation} \pi_{sell}=\pi_{not sell} \end{equation}

     Therefore, it means that the seller of safe GMO can only sell it with a probability which is not $1$.

2.4 Total Failure

     The four types of market can be determined either by the payoffs, i.e. $C$ and $P$, or in many situations, directly deducted by the buyer according to his own experience or other factors.

     If, due to various reasons, the consumer has somehow reached the conclusion that the GMOs sold in the market are all unsafe, then his $p_{safe}=0$, $p_{unsafe}=1$. The payoff if the consumer chooses to buy is $0\cdot (A-P)+1\cdot (B-P)=B-P<0$, so the consumer will not choose to buy. So the seller’s payoff will be $–C$ is he sells, smaller than $0$, the payoff if he chooses not to sell. So he will not choose to sell. The market is in its total failure.

     ``Lemon'' can mean ``second hand goods'' or ``goods that are not so good'' in the American slang, the concept of Lemon Market was first introduced into economic theories by the Nobel winner George. A. Akerlof in his essay The Market for ``Lemons'': Quality Uncertainty and the Market Mechanism where he explains the market failure caused by information asymmetries and externalities, illustrated with the example of the second-hand car market [28]. In the GMO market, information asymmetry means that the sellers can tell safe from unsafe while consumers cannot, because safe and unsafe goods look similar.

     In a GMO lemon market, the highest price a consumer is willing to pay will not exceed the value (in this case we assume it solely means safety conditions) he expects of the GMO product, and the expected safety condition of a product is the weighted average of both the safe and unsafe products [29]. Choosing so will result in a gradual withdrawal of the safe GMO sellers from the market, because the average price in the market is lower than the value his products possess.

     As this happens, the ratio of the safe products in the market will gradually drop, and the highest price the consumer is willing to pay will drop further with the downfall of consumer’s expectation of the product, resulting in the withdrawal of GMO products which are of relatively high quality.

     This kind of adverse selection will make the market end up filled with the worst kind of GMO. Therefore, unless consumers are willing to buy this kind of GMOs, the market fails spectacularly.

     Before getting a second look at the five assumptions or getting a closer look at the four types, let’s look at some surveys done by former scholars to have some understanding on consumers’ real attitudes towards GMOs across the world in recent years.

Contacts
  • No.1, Shizishan Street, Hongshan District
    Wuhan, Hubei Province
    430070 P.R.China
  • Wechat : hzauigem
  • QQ Group : 313297095
  • YouTube : hzauigem