WIPO Journal - World Intellectual Property Organization

The Economic Effects of Geographical Indications on Developing Country Producers 165
Applying model to GIs
GIs, as is noted above, function by restricting production to a defined area and limiting sales to a quality
standard set by the managing group or body. We define the output Q as farm product; hence the relevant
inputs would be land and other farm inputs (labour, fertiliser, etc.). If our interest was to examine the
effects on processors (i.e. middlemen), then inputs would include farm product and other marketing inputs.
The model does not have any specific functional form (equations reflecting the production relationships)
and is very simple in its structure, making it readily adaptable to apply to GI analysis in the following
way:
• Restrict area to the defined GI:
this functions similarly to an input quota in the agriculture policy model by cutting off
product produced outside that region. Within the Alston and James model, the effects of an
input (here land) quota can be represented by making its effective supply perfectly inelastic
(i.e. for land setting ε 1=0) and defining the amount of displacement of production as -δ 1. For
some products where a GI has become a near-generic name for the product, the quantity
displacement will be very substantial.
• Quality enhancements:
this can be represented as a shift in demand (η) treated in the Alston and James context as
an output subsidy. When producers of high quality product (e.g. Darjeeling tea) certify their
product by a competent authority it signals quality to consumers, enabling the charging of
a price premium. This quality enhancement results in a shift in demand (η) similar in concept
to an output subsidy.
GI certification which restricts the area of production (land) and/or enhances the quality of the output by
defining minimum standards for the product affects the factor suppliers by inducing a shift in the demand
for each factor. For example, whether suppliers of land (land owners) benefit from GI certification depends
on whether the derived resulting demand for land is induced to rise or fall. This in turn depends on prices
of all the other factors and cross elasticities or elasticity of substitution, the degree to which one input can
replace another.
The benefits from GIs are distributed among consumers and factor owners (land, labour, capital and
other purchased inputs), with the proportions depending on selected parameters. Here, as is explained
above, we use demand and supply shifts over a moderate range to represent the effects of GIs. Under these
conditions, benefits to consumers are approximately proportional to the percentage change in quantity
consumed:
and the benefits to suppliers of land (X 1) and other inputs (X 2) are approximately proportional to the
percentage change in the use of the factor:
A large component of analysing the distribution of benefits from GIs using our model is then quantifying
the proper values of parameters such as η, ε 1, and ε 2. An aspect of estimating these elasticities will be
econometric analysis using production and consumption data, but some of the changes will be so large as
to lie outside the range of historical data meaning some judgment is required as well.
(2011) 2 W.I.P.O.J., Issue 2 © 2011 Thomson Reuters (Professional) UK Limited