The Economics of Liability for Genetically Modified Organisms

Abstract

This thesis examines the economic issues surrounding liability for genetically modified organisms, with focus on the New Zealand situation and liability debate. I review the law and economics literature on liability, and consider an adverse selection problem that occurs where GMO firms choose whether to conduct a project when project benefits and risks are heterogeneous. I consider the rationale for and effects of joint use of liability and regulation in a simple model, and find that negligence and strict liability are equivalent. I then find consider a range of complications such as bilateral precaution, sunk research costs, imperfect and asymmetric information, biased regulators, judgement errors, externalities and limited injurer assets. I find that strict liability leads to higher social welfare than negligence under all of these cases except positive externalities and limited injurer assets.