conflicts between uses of neighbouring properties. In this context the various proponents argued for
assignment of property rights to the ‘least-cost abater’ Michelman, 1971 and then the ‘best
briber’ Calabresi and Melamed, 1972. These criteria were based on the idea that the assign-
ment should either assist the achievement of the market solution through assigning the right to
the individual best able to organise the activity via market transactions or mimic its outcome by
assigning it in the most efficient manner. See Swanson and Kontoleon 1998 for a general dis-
cussion of this literature.
These same concepts were placed within the context of an industry by Grossman and Hart
1986 who argued that the property right should be assigned to the agent who could use it most
productively. They undertook their analysis in the context of a 6ertical industry stereotypically, pro-
ducer – wholesaler – retailer, asking at which levels of such an industry should the property right in
the good be held for efficiency purposes. For example, would the good be supplied most effi-
ciently if it were owned by a single entity such as its producer with the hiring of the specific ser-
vices supplied by others retailers, transporters further downstream in the industry? Or, would it
be more efficient for each level of the industry to have the property right in the good when it passed
through its hands? Grossman and Hart 1986 argued that this depended upon the need for
property rights, as an incentive system, at any particular level of the industry. They used the
example of the insurance industry underwriter- sales agent to illustrate their point. In the US life
insurance industry the underwriters owned the policies throughout the chain, and hired sales
agents to act as their employees in marketing them, while in the motor insurance industry the
underwriters sold the policies to independent agents whom then sold them on to their clients.
Grossman and Hart argued that this property right allocation to motor insurance agents was
important for efficiency reasons because motor insurers were dependent upon repeat purchasers
of their products while life insurers clearly were not and repeat purchases were highly dependent
upon the quality of service that was received from the agent. Hart and Moore 1990 further refined
the idea of the efficiency of property rights alloca- tion in their concept of the best in6estor, the
individual or entity best able to make a produc- tive investment in the asset concerned.
In summary, the economics of property rights has developed a very basic framework for under-
standing the importance of property right assign- ments for efficiency purposes; basically, it provides
that the property right assignments matter very much if contracting within the industry is costly,
and that the property rights should then be placed at those levels that are most effective at investing
in the assets concerned. When considering the delivery of a final product to a consumer market,
all of the stages of the industry that were required to generate that product are potential ‘rights
holders’. If it is costly to contract across levels of a vertical industry, then there is a prima facie
argument for the creation of a property right at all those levels where it is important for the
maintenance of and investment in the asset.
3. Industries dependent upon genetic resources
In order to apply these ideas concerning prop- erty rights to plant genetic resources, it is first
important to outline how and why certain indus- tries make use of these resources. This involves a
short exposition on the role of the information generated by genetic resources in supplying the
research and development sectors of certain of our fundamental industries. RD is the term used
to describe the process by which new ideas are developed for application to common problems.
When a new solution concept is successfully de- veloped within the RD process, it will then be
marketed, usually embodied within some novel product. The industries that rely upon genetic
resources are usually those that use RD to solve certain recurring problems at the interface be-
tween human technology and the biological world.
Economists have long analysed the research and development process as one of information
creation, application and diffusion Arrow, 1962. The theoretical concept of the RD process is
usually represented as a production process itself dependent upon the application of various factors
of production machinery, labour, etc. for the production of useful ideas. Certain industries by
their nature expend substantial proportions of their total available resources on the RD pro-
cess. These are industries that have the creation of new information at the core of their functions.
For example, the computer software, plant breed- ing and pharmaceutical industries are all RD
intensive industries, with over 10 of their gross revenues invested in the development of solution
concepts. In a recent survey of the plant breeding industry, the surveyed breeders allocated, on aver-
age, 18 of annual turnover to breeding and research
activities Swanson
and Luxmoore,
1998. It is this industry and one other, pharmaceuti-
cals, where the industrial RD process most clearly depends upon the use of genetic resources
in its search for solution concepts. Agriculture and medicine may be conceived of as living de-
fence systems rather than static technologies. That is, these fields of human activity consist of contin-
uing efforts to combat the erosion of human- erected defences against the background of a
continuously changing biological world. In agri- culture we continue to maintain a system that
attempts to keep at bay the always-evolving pests and predators of our primary food crops. In
medicine we continue in our efforts to defend against the same as they impact upon human
beings more directly. In both cases the defences are neither absolute nor perpetual; they are con-
stantly eroding under the pressure of the forces of natural selection. The RD processes in these
industries are focused on providing solution con- cepts to the problems that arise in these contexts.
Genetic resources are crucial inputs into this RD process. The same forces that are at work
against the human domain are also opening against all other extant life forms. Any organism
that persists must do so because it has evolved ‘successful strategies’ in the sense that they are
successful in a contested environment, i.e. resis- tance. Genetic resources are important inputs to
RD in these industries simply because they con- tain information which has been generated within
the relevant crucible. It is not any biological diversity per se that is the most useful input into
important human industries, but rather it is the information to be gained from the characteristics
which have evolved within a living environment that is most likely to make a contribution. Biodi-
versity is useful to our industries because of the manner in which the existing set of life forms have
been selected within a living, contested system similar to our own, which provides us with an
already-vetted library of successful strategies.
It is the information in the genetic resource that is valuable in the RD process, not so much the
tangible resource itself. In the context of agricul- ture and pharmaceuticals, biodiversity is one of
the primary sources of a stock of information that may be accessed for possible solution concepts to
industrial problems. This information may be brought into commercial use in one of two ways,
either in the incorporation of the explicit informa- tion that specific genetic resources represent the
observed characteristic or phenotype or alterna- tively by the use of the implicit, biological coding
of that information its genotype. That is, indus- try can either take note of the explicit information
and make use of that information to develop new products incorporating that information without
translocating the biological material, or the indus- try can make actual use of the coded genetic
material that produces that effect and transplant it to the desired purpose.
RD will always remain a substantial part of the agricultural plant breeding and pharmaceuti-
cal companies because the biological world will continue to generate problems that must be
solved. One recent survey found that RD repre- sents a substantial proportion of the total expen-
diture by both the pharmaceuticals and plant breeding industries. Also, the primary reason
given for continued plant breeding is now the maintenance of resistance to pests rather than the
enhancement of mean yields — 55 versus 35 of respondents in a recent survey reported this
Swanson and Luxmoore, 1998. Biodiversity is an important input into this RD process be-
cause it is output from this same process, and contains information on strategies that have
worked successfully as solution concepts in the
past. Much of the RD process in these indus- tries has been focused on the screening of the
strategies that are operational in nature, and their development for specific applications in the indus-
trial context.
In certain circumstances biodiversity operates as a sort of alternative to the standard RD
process. It provides a solution concept that is already known to apply to an important problem.
The identification of medicinal plants and their applications gives a good example of this form of
biodiversity input. Other times the information within nature requires substantial analysis and
modification before it is incorporated within a final product. In this case the information from
biodiversity is best considered as a raw informa- tional input into the RD process. That is, it is
only after it is combined with other forms of capital scientists, specialised machinery that the
naturally generated information can be developed into useful applications. An example of this form
of biodiversity input into RD would be the range of crops used in plant agriculture and plant
genetic resources exposed to environmental shifts and changes, thereby revealing which are the most
successful in the current environment.
In summary, the RD process is the essence of industries such as agriculture and pharmaceuticals
because the primary purpose of these industries is now to address the problem of recurring resis-
tance to previously successful products. RD is the process by which the information that will be
useful against these biological phenomena is iden- tified. Biological resources are essential ingredi-
ents of this RD process in that they themselves embody successful strategies within a contested
environment. They have long been used as a sort of alternative RD process, and they also remain
an important form of input to more standard forms of RD processes in the agricultural and
pharmaceutical industries.
4. Informational property rights: intellectual property rights and the incentives to supply RD
