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High transaction costs and an absence of institutional infrastructure in developing countries prevent comprehensive enforcement of intellectual property rights and generate obstacles to the adoption of genetically modified (GM) crop technology. Governments of developing countries that are members of the World Trade Organization are faced with two options when licensing GM crop technology: (1) attempt to regulate GM crops to the standards of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) or (2) allow a black market in GM seeds and risk trade retaliation from the GM innovator's host country through a TRIPS trade complaint. This paper develops a conceptual model that frames the adopting country's range of licensing options, including a new levy system, and derives welfare measures for each option. The model illustrates how a levy on GM technology can be a welfare-increasing policy for developing countries, and the operation of a levy is discussed. The conceptual model is applied to Brazil's soybean market and quantitative economic surplus measures are estimated within a calibrated welfare model for a range of licensing scenarios. The model's results suggest that a levy may interfere with the long-term prospects for innovators to collect monopoly rents in adopting countries.
