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Revision as of 02:06, 18 October 2014
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Economics
The Four Types of Possible GMO Market Condition
Now let’s look at the assumption validity of the outline one by one.
First, we assumed that the value of a GMO contains solely of one factor, the safety condition. Granted; for value assessment is not the topic of this essay, and one advantage of using game theory is that it allows us to analyze one factor at a time.
Second, we omitted the difference of GMO companies and GMO sellers and GMO developers, and call them by ``GMO seller''. Granted; for this difference gives rise to the ``free rider'' problem that are usually countered by a definition of property rights. And it’s the second instance of market failure according to Donat (2003) which is not relevant to the topic of this report so we will not discuss it here.
Third, we assumed that both the GMO sellers and the GMO consumers follow sequential rationality, namely, they all expect maximum payoff in every one of their choice. Granted; or rather, it has to be true (and is proven so), otherwise the whole outline would not have existed in the beginning.
Fourth, we assumed that the information is complete, which means that, both the sellers and the consumers know the type, strategies and payoffs of each other. Actually, it doesn’t matter if the information is complete or not, for a game of incomplete information could always be converted to one under complete information using Harsanyi’s Theorem, i.e. introducing Nature as a player and let it choose the type of the players. (For more information on Harsanyi’s Theorem, see [26])
Now comes to the fifth. We assumed that consumers are perfectly rational, so their belief of the GMO safety condition could be said to reflect the intrinsic safety condition of said GMO, which someone or some party must be able to verify as an infallible truth that’s at least as true as the existence of the universe.
Halt here.
It has been well established that no matter how much one educates ``the public'',``the public'' will hardly reach the caliber to understand the nuances of the new bio-technology, for what entails of this technology requires much time, effort, expertise etc. to understand which ``the public'' oh-face-it just cannot have by some general education. However, when one hastily comes to the deduction that the information is asymmetry, one might as well be saying that the other side (if we keep the assumption two of not distinguishing between GMO selling companies and the scientists who develop them) is rational because they know more about the technology. However, is knowledge equal to rationality?
Rationality ``is the quality or state of being reasonable, based on facts or reason'' [43]. Simply speaking, it means a consistency between knowledge and beliefs (K. Stern 1979).[44] Therefore, if the consumers are irrational in this sense, then their belief of the safety condition of a certain GMO product does not necessarily reflect the intrinsic safety condition of the product. If so, the meaning of parameters $p_{safe}$ and $p_{unsafe}$ will demand second thought, because now there may be inconsistencies between the notion of ``the probability of consumer $x$ believing that GMO $y$ to be safe'' and ``the probability of said GMO is virtually safe'', which have been assumed to be consistent all through the layout of the four market types.
Then, one would argue, if we cannot rely on the consumer’s rationality to reflect the virtual safety conditions of a GMO product, can we rely on the scientists’? After all, mustn’t ``the intrinsic safety condition of said GMO'' be verified as an intrinsic truth, which is an infallible truth that is as true as the existence of the universe, at least?
However, it is has also been well established that no matter how much nuances the scientists think they understand about the new technology, the technology itself could still very much be in deep dark unchartered waters especially in fields as fascinatingly complex as biology. The fundamental reason why scientists can keep ``discovering'' things, fore and foremost, is not because they possess hard-earned caliber but because there ARE things to be discovered.
In cases where knowledge is almost finite such as a car market, rationality in the economic sense has the potential to be perfect. But in the scientific fields especially one that deals with the complexity of life’s mechanisms where knowledge seems to be infinite, at least for now, how can one really, really believe that what he believes today wouldn’t be thrown over in a drastic revolutionary discovery tomorrow? If it can, then there wouldn’t be the common description of scientific researchers as ``explorers probing in the dark''.
A third independent party can verify the safety condition of a GMO product for the first and second parties, the law can verify the safety condition of a GMO product for the orderliness of the market, a fiercely convicted scientist can verify a GMO product pledging on his honor and it’s respectable, but who can claim to be able to verify a GMO product for truth itself when the very definition of truth is still in controversy?
That is the problem of rationality and the unwarranted ground for further policy making.
Therefore, the fifth assumption fails. And subsequently, the whole paradigm shifts. I cannot say it collapses, because the layout of the four market types still is perfectly reasonable if we pretend the assumption about rationality is true.
To further illustrate the fallibility of rationality, here is a diagram drew by Professor Daniel McFadden, a behavioral economist, in his illuminating essay Rationality for Economists?[45] which shows the multiple factors that influence belief, which is different from knowledge (information).
![](https://static.igem.org/mediawiki/2014/8/8f/Daniel_McFadden.jpg)
So the economists and policy makers believe the market for GMO is failing. This is based on the fact that they believe people are not buying good, legitimate, safe GMOs because there is an information asymmetry, which they believe is an information asymmetry between the GMO-scientific side and the GMO-layman side, and not an information asymmetry between GMO promoters themselves and the GMO products they promote.
When the fifth assumption fails, which could happen, parameters $p_{safe}$ and $p_{unsafe}$ change. The change is not in their value---which is the focus of many policy advices regarding information asymmetry---but in their definition of their subscript: safe and unsafe, whose definition, as demonstrated above, can be fallible.
So, ordinarily, the Zimbabwe refusal of GMO aid, the Swedish’ willingness to ``pay a significantly higher price to ensure a total ban on the GM fodders'' [37], the fiasco in China where it has become a popular marketing strategy for companies to label their product as ``non-GMO'', and the negative attitudes of some EU countries etc., are all cases of ``market failure'' with different degrees. But with the rationality assumption not valid, how can they claim so?
Actually, if we consider something extreme only for the convenience of example, such as, imagine an alternate universe, where the virtual safety condition and the perceived safety condition believed and therefore acted out by the information-givers were exactly at the opposite side. So, the conditions for the total market success would all be satisfied, and the market is totally successful. So what are policies for in that alternate universe? The market would be working just fine, none of the unsafe product would enter the market because the government bans it, and people wisely keep away from it.
But of course, the reality is always somewhere between the extremes. I’m not implying anything about the virtual safety conditions of a real GMO, what I have been trying to say is that, the policies made under the conclusion of market failure is flawed not in its follow-up reasons, but in its fallible origin of human beliefs under which the conclusion is established.
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.''
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 for justice.