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Valuing new random genetically modified (GM) traits with real options: The case of drought-tolerant wheat

William Wilson (Department of Agribusiness and Applied Economics, North Dakota State University, Fargo, North Dakota, USA)
Sumadhur Shakya (Transportation and Logistics Program, North Dakota State University, Fargo, North Dakota, USA)
Bruce Dahl (Department of Agribusiness and Applied Economics, North Dakota State University, Fargo, North Dakota, USA.)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 6 July 2015

331

Abstract

Purpose

The purpose of this paper is to develop an analytical model to value traits at different developmental phases and to determine the value of drought tolerance (DT) in wheat using GM technology.

Design/methodology/approach

A stochastic binomial real-options model of GM traits was developed to estimate the value of a DT wheat trait.

Findings

The results indicate that the value of DT wheat using GM technology is in-the-money at each development phase. The greatest value would accrue for the Prairie Gateway and Northern Great Plains regions in the USA.

Research limitations/implications

The approach is useful for valuing high-cost risky investments in technology and results provide guidance for development strategies.

Originality/value

The model is original and its applications to wheat are unique.

Keywords

Acknowledgements

The authors wish to acknowledge support from the Center of Excellence in AgBiotechnology at North Dakota State University. The paper was partially supported under a USDA/ERS cooperative agreement titled Valuing GM Traits in Wheat, as well as research support from the North Dakota Agricultural Experiment Station, and the North Dakota State Wheat Commission.

Citation

Wilson, W., Shakya, S. and Dahl, B. (2015), "Valuing new random genetically modified (GM) traits with real options: The case of drought-tolerant wheat", Agricultural Finance Review, Vol. 75 No. 2, pp. 213-229. https://doi.org/10.1108/AFR-05-2014-0014

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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