The paper aims to examine how the theory of institutional economics is used to analyze and explain how the canola industry has developed and changed over the past 30 years, in order to highlight the important role of extra‐market institutions in innovation processes.
The theory of transactions and institutions is examined, specifically the concepts of rivalry, excludability and voice, in order to identify optimal institutions to address potential market failures in new product development.
In the pre‐biotechnology period, missing links in the supply chain and the absence of private property rights contributed to public good market failures; the resulting market failures and inadequate investment incentives were overcome by development of public research programs and new participatory institutions that managed research coordination, extension and market development. In the biotechnology‐phase, private property rights, vertical integration and contracting resolved many of the earlier market failures but failures in research coordination, enforcement of property rights and marketing have required new institutions.
The development of the highly innovative Canadian canola supply chain over the past 50 years – encompassing a period of public‐sector‐based, conventional plant breeding and, more recently, a privately‐directed biotechnology‐based phase – highlights the role that different institutional structures can play in product innovation.
This study of the canola chain offers insights into how different types of market failures arise at various stages of development, requiring new institutions to address these failures, and provides lessons on how to foster the development of other innovative agri‐food supply chains around the world.
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