The Economic Impact of bGH on the New York State Dairy Sector: Comparative Static Results

Abstract

The price and quantity effects of a forthcoming biotechnology product, bovine growth hormone (bGH), are explored in a simple partial equilibrium model. The model is based on previous theoretical work on technological change but is developed in terms of a sector output. A particular output curve is estimated using data from a random sample of New York State dairy farms. Information on the farm level production effects of bGH is used to shift the output curve and to solve for equilibrium levels of price and output. The model projects the bGH may lead to the exit of 5,400 New York dairy farms and a 20 percent reduction in herd size. Consumers will benefit from an approximately 30 percent drop in milk price. The effect on gradual diffusion of bGH on farm numbers is considered. To accommodate this technology policies encouraging an orderly transfer of resources out of the dairy sector should be examined.

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