The Formation of GM-free and GM Coasean Clubs : Will They Form and If So How Much Can They Achieve?

<p>The unintended presence of traces of genetically modified (GM) crops in the harvests of non-GM crops plays a prominent role in the debate over the coexistence of GM and non-GM crops. One way to address the issue is the formation of GM-free or GM-only clubs. We model the decisions of individual farmers to cultivate either GM or non-GM crops and combine this with a game theoretic model of club formation to investigate the feasibility of such clubs. We consider two liability regimes: GM farmers are liable or they are not. We consider two benchmarks: Nash equilibrium without negotiations and the efficient allocation and compare those with partial co-operation through a Coasean club. We find that in both regimes a relatively large club can form but they are not always necessary to reach the efficient allocation. In fact, if farmers can freely decide under profit maximisation what to cultivate, they reach 95% of an efficient allocation. This holds independent of the property rights system and provides strong support for coexistence policies based on ex-post liability such as in the US and Spain.