Informational Requirements and the Regulatory Process of Agricultural Biotechnology
Thomassin, Paul J., Cloutier, L. Martin, Journal of Economic Issues
This paper investigates the reinforcing and balancing regulatory pressures that are impinging on the performance of agricultural and food biotechnology--based activity in Canada. Regulatory agencies are in the process of adjusting their procedures to take into account disruptive innovations in biogenetics, proteomics, pharmacogenomics, and bioinformatics (Burrill and Company 2000; Christensen 1997; The Economist 2000).  This adjustment has become necessary because governments need to balance emerging tensions between the informational needs of consumers and investors. Information requirements of the regulatory agencies are changing. Part of the outcome of the regulatory process is to satisfy the informational needs of consumers and investors concerning the technology. Regulators need information on health and safety of new biogenetics-based products (transgenic crops, feeds, and foods), consumers demand information about product characteristics, and investors are in need of information on intellectual prop erty rights (IPR) and administrative process.
The objective of this paper is to identify endogenous pressures, and their time delays, that are responsible for regulatory change in the plant agricultural biotechnology area. An influence diagram, the initial step of the system dynamics (SD) method, makes explicit the role of information flows as a limiting factor for use by the various parties, and as a means of controlling strategic transactions that influence efficiency and the distribution of wealth. This method is employed to clarify informational requirements, define causal relationships, and identify the main feedback loops that influence the dynamic behavior in the regulatory process.
The lack of a method to operationalize institutional economic theory often restricts its influence among economists due to its perceived limiting potential for theory building and generalization (Coase 1998). The preoccupation of institutional economics with "pattern identification" has led, in recent years, to the suggestion that simulation methods, and in particular the SD method, are a means of operationalizing institutional economic concepts (for details on the relationship between institutional economics and SD concepts see Radzicki 1988 and 1990). Central to SD are the notions of feedback and of time delay. Actions within a system can be modeled, and their associated flows (whether physical, economic, and/or information) influence the accumulation, with some time delay, of levels within systems  (Forrester 1994; Richardson 1991). These interactions of stock-and-flow microstructures are used to study the macrobehavior of the system modeled. SD is also suited to address issues such as biotechnology re gulation because of the disruptive nature of these innovations and of the lack of regulatory experience (March et al. 1991). This simulation approach can generate the information needed because it can (1) supplement human-bounded rationality in decision making (Simon 1991), (2) consider the unintended consequences of alternative regulatory options (Merton 1936), and (3) provide evidence to interpret results with institutional economic concepts. The proposed application of SD methods in this paper contributes to the integration of institutional economic theory with a modeling framework.
Institutional Concepts, Information Requirements, and the Regulatory Process
The regulatory institutions of the agriculture and food sector are under increasing pressure from consumers and investors to adjust (Industry Canada 2000). Institutional change can be viewed as a mechanism to balance the interests of consumers and investors. Commons (1931) suggested that the regulatory framework adjusts by taking into consideration the pragmatic criteria of workability in institutional design. He made a distinction between various types of transactions: rationing, managerial, and bargaining. …