When I teach my Intro Microecon students about externalities, I define them as something that occurs when someone does not bear the full cost/benefit of their actions. I tell my students that the ‘free market’ will over-provide negative externalities, e.g. pollution, and under-provide positive externalities, e.g., open space. Apparently that isn’t always the case.

An article in Science reports that Bt corn has a broad ‘halo effect’ that benefits non-Bt corn. (Article is gated, but here’s a clearer summary.) Specifically, corn bred to produce a toxin that kills European Corn Borer reduces the corn borer population so much that the corn borer cannot gain a critical mass in non-toxic corn. In other words, farmers who choose not to pay the premium for Bt corn still largely enjoy the benefits. The authors suggest that instead of planting 90 percent Bt corn (which is where we are now), the bulk of the benefits can be had with just 50-60 percent Bt corn.

The ‘free market’ doesn’t even not-work when we predict it won’t work! I love being an economist–people are so unpredictable!

(ht: the scientist gardener)

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