The economics of biodiversity and ecosystem services

The irreversible loss of genetic information (and the resulting loss of both evolutionary and technological options) caused by the extinction of species involves a global public good, the gene pool. Although important, it is not the only reason to be concerned about biodiversity change. As the Millennium Ecosystem Assessment (2005b) points out, another reason for concern is the role of biodiversity in the loss of ecosystem services. These also involve public goods, but unlike the public good associated with species extinction, they are almost always local or regional in extent. The conservation of species threatened with local extirpation protects a number of provisioning and cultural services, as well as the capacity of the local system to function over a range of environmental and market conditions. The latter may involve, for example, the regulation of specific biogeochemical cycles in different climatic conditions, or the protection of crop yields in the face of an array of pests and pathogens. In almost all cases, however, conservation of the functionality of particular ecosystems provides benefits to specific communities rather than to global society (Perrings and Gadgil 2003). Whether we focus on the gene pool or ecosystem services, however, biodiversity – the composition and relative abundance of species – is important because of its role in supporting the capacity of the system to deliver services over a range of environmental conditions. The economic problem of biodiversity, in this sense, differs from the economic problem of individual biological resources. The question is not at what rate to extract a particular resource, but how to balance the mix of species to assure a flow of benefits over a range of possible conditions. Biodiversity conservation is frequently a public good. In many cases, nobody can be excluded from the benefits offered by the protection of assemblages, and if one person benefits it does not reduce the benefits to others. Because it is a public good, it will be ‘undersupplied’ if left to the market. The incentive that people have to free ride on the conservation activities of others means that people will collectively conserve too little biodiversity. At the same time the lack of markets for many of the biodiversity impacts of human activities mean that people are not confronted with the true cost of their decisions. Open access to scarce environmental resources is widely recognized to be a major cause of overexploitation. Nowhere is this more clearly shown than in the world’s fisheries. Worm et al. (2006) identified catches from 1950 to 2003 within all 64 large marine ecosystems worldwide: the source of 83 per cent of global catches over the past 50 years. They reported that the rate of fisheries collapses in these areas (catches less than 10 per cent of the recorded maximum) has been accelerating, and that 29 per cent of fished species were in a state of collapse in 2003. Cumulative collapses affected 65 per cent of all species fished. While property rights are generally better developed in terrestrial systems, many of the effects from anthropogenic land use change on biodiversity and