Biodiversity Research: The Socioeconomic Context
Resource depletion, which usually involves habitat conversion and the attendant loss of biological diversity, is often justified as the only way for developing nations, faced with growing populations, huge foreign debts, nascent industrial capacity, and a largely uneducated agrarian populace, to develop. This was the course followed by so many industrialized nations, and it has become the standard development pattern worldwide.
This development model, however, is undergoing extensive scrutiny. As more economists have begun to work with, and incorporate the understanding of, environmental scientists, they have raised fundamental questions about the assumptions and prescriptions of conventional economics that underlie this model. (See, for example, Daly and Cobb, 1990; Pearce and Turner, 1990; Costanza, 1991. The dialogue between economists and ecologists has also been advanced through recent establishment of the International Society of Ecological Economics and publication of its journal Ecological Economics.) This reexamination is growing increasingly sophisticated in its analysis, but it is based on the simple recognition that the scale and the speed of anthropogenic alteration and depletion of soil, water, atmospheric, and biological resources have disastrous repercussions.
These consequences have, in fact, already overtaken many countries. Areas that have lost biological diversity may become seriously degraded, for example, the salinized soils of northeastern Thailand and the Indus valley. Other areas may be intrinsically less productive, as in the extreme case of the Imperata cylindrica grasslands that have spread rapidly over millions of hectares of disturbed and deforested lands in the tropics, rendering them all but useless from an economic standpoint. Alternatively, areas may remain productive but vulnerable to biological disaster. In Asia, leucaena (ipil-ipil), one of the most widely planted and productive multipurpose trees in use today, is now
being devastated by a psyllid insect pest. Similarly, the monocultures of cassava in West and Central Africa were ravaged when the cassava mealybug was inadvertently introduced from South America, the original home of cassava. The mealybug was brought under control only through the introduction of a natural parasitic wasp—a move that may have been worth billions of dollars and illustrates the importance of understanding the role of biodiversity in agroecosystem management (Norgaard, 1988; Neuenschwander et al., 1990).
As the resource depletion model of development has been adopted worldwide, the loss of biological diversity has accelerated. Ultimate socioeconomic reasons for this loss include the failure to consider environmental externalities in benefit-cost analyses; misguided government policies; land tenure systems that promote resource depletion; inadequate institutional infrastructure; ineffective communication among local, national, and international institutions; and inequitable distribution of political power and its attendant corruption. Highly destructive global economic forces, including the accumulated $1.2 trillion international debt and, since 1984, the flow of cash away from poor developing nations to wealthy industrialized ones, have reinforced these factors. It is fundamental, therefore, that the development community and the developing countries themselves evaluate the economic factors involved in the use or destruction of biological diversity.
ECONOMIC RESEARCH AND THE CONSERVATION OF BIODIVERSITY
Economic theory provides an analytical method for diagnosing when inefficient use of environmental resources is likely to occur. It holds that resources will be allocated efficiently when prices reflect true resource scarcity, when there exists a right of ownership to resources so that free trading of resources is possible, and when consumers have access to information about the total amount of a resource available. Economists will continue to argue if and when these assumptions are met, but the expanding threats to biological diversity and other natural resources have raised fundamental concerns about the limits of this method as practiced.
First, natural resources provide nonmarketed goods and services as well as commodities. Usually, however, only commodities are openly traded, and therefore priced, by markets. For example, harvested wood may be priced in the marketplace, but trees also provide medicine and other minor products for local peoples, and control soil erosion and flooding regimes. Thus, trees simultaneously provide commodities
that may be traded on the world market (logs), goods available primarily through the local market (medicines), and services that are not traded (erosion and flood control).
Second, incentives, tax provisions, credits, subsidies, and other economic policies distort commodity prices and encourage massive environmental transformation. Many developing nations have institutionalized short-term profit taking through resource depletion via these and other economic policy instruments. Tax holidays, inadequate rent taxation, low stumpage charges, and no-interest loans for forest clearing to establish cattle ranches are examples of policies that have led to the loss of biodiversity (McNeely, 1988). Policy distortions such as these have contributed directly, to increases in deforestation rates in recent decades—not only in developing nations, but in the United States and other developed countries as well (Repetto and Gillis, 1988).
Third, some natural resources, such as biological diversity, are public goods that are used but not owned in the classical sense. Weak ownership, as in the case of nationalized resources or traditionally managed common property in many developing countries, can promote a rush to benefit from what one controls or has access to today, but may not control tomorrow—the "free-rider" problem (NRC, 1986b).
Finally, consumers do not have adequate access to information about the total value of natural resources. Much of this information—particularly regarding nonmarket services such as ecosystem functions, as well as most commodities in the tropics—simply does not exist. When information is inadequate or nonexistent, prices do not reflect resource scarcity.
As resources are depleted for short-term gain, the potential for future use, profit, and development is jeopardized, and when resource depletion involves or leads to reduced biological diversity, even the basic conditions underpinning potential change are compromised. If the present economic system allows only the conservation of what is currently too expensive to exploit (e.g., tropical forests in inaccessible mountain valleys) or too valuable to destroy (e.g., groundwater quality), then the conservation of biodiversity will require either that the present economic system change or that biodiversity be made too expensive to exploit or too valuable to destroy.
The economics of biodiversity conservation raises questions that demand carefully thought-out and often sophisticated answers. Simplistic research will not provide the required information. Research in this area should ideally identify the economic forces leading to the loss of biodiversity within a country; determine the role of international economic institutions and trends in promoting this depletion; elucidate the economic principles operant in cases of successful development and conservation; and develop and test economically viable mechanisms for
slowing the rate of resource depletion while stimulating the conservation of biological diversity.
Such research should be multidisciplinary and, in particular, should bring together economists and ecologists. It should also be collaborative, with researchers from developing and industrialized countries participating as equal partners. Because economies operate at various spatial scales, research should occur at project (micro-or mesoeconomic), national (macroeconomic), and global (international economic) levels.
PROJECT- OR COUNTRY-LEVEL ECONOMIC RESEARCH
Ultimately, natural resources, including biodiversity, are managed or mismanaged by national governments or local peoples, depending on the degree of control these groups have over resources and each other. In addition, development agencies concentrate their greatest efforts at the country level. Therefore, project-to country-level socioeconomic research is of greatest importance and urgency. In particular, effective conservation of biological diversity will require more accurate and better-focused information on causal mechanisms, valuation, and incentives and disincentives.
Analysis of Causal Mechanisms
Economic instruments (including rent, taxes, royalties, and concessions; government-financed development; and land tenure systems that depend on landscape alteration) are integral parts of development programs and should be analyzed carefully to determine their short-and long-term effects on the rate of natural resource depletion. Both the local and national economic instruments that lead to the depletion of natural resources and the beneficiaries of such exploitation must be determined. This kind of analysis must occur before or early in the planning of development programs for intervention to be effective.
Examples of the analyses of economic factors that promote the loss of biodiversity in forest ecosystems can be found in Repetto and Gillis (1988). This analytic approach should be applied to other systems, including and lands, wetlands, freshwater systems, marine and coastal zones, and agroecosystems.
The following areas of research on causal mechanisms affecting the conservation of biological diversity are recommended for increased attention:
Determine which (and how) economic instruments used to stimulate the economy are affecting the depletion of biological resources.
Definitions of Rent and Costs
Resource Rent. Rent is a residual or surplus paid to the owners of a resource after payments to all other factors of production are deducted. It is the "price" of the natural resource in situ and is attributable to its scarcity or distinguishing characteristics (i.e., better-quality land or forest can earn more rent).
Production Costs, User Costs, and Environmental Costs. Natural resources, including biodiversity, are undervalued and thus overexploited—not only because environmental costs are ignored but because user costs are ignored due to a lack of secure, exclusive, and transferable ownership of these resources. Ownership may be held in common, rather than by individuals or agencies (such as government), but the argument is the same.
Environmental costs are those incurred as a consequence of current resource management practices, but not factored in when determining current production costs and benefits. User costs equal the cost of current exploitation in terms of diminished future availability. To the extent that the resource would appreciate over time faster than the discount rate, the resource, or part of it, must be conserved for future use. Under insecure tenure or short concessions, there is no guarantee that the current user of the resource will have access to it in the future; therefore, the user infinitely discounts future benefits (i.e., ignores the user cost of present exploitation of the resource).
Compare the relationship between the structure (time and cost) of concessions and the willingness of concessionaires to improve or restore conditions. Would tradable concessions improve management?
Determine the degree to which the lack of property rights affects investment in the development of biological resources by the private sector.
Examine how price instability in the major export crops affects extraction rates for biological resources.
Quantify the impacts of different land use practices on long-term economic profitability, both on-site and downstream.
Determine the economic and environmental trade-offs of annual, perennial, and mixed cropping agricultural production systems in the face of fluctuating markets.
Determine which groups gain and which are deprived under the current distribution of economic benefits and environmental trade-offs.
If biodiversity is too valuable to destroy, but the policymaking process does not yet recognize its value, then valuation research must have extremely high priority. Research that establishes the value of biodiversity can improve policy in three ways: (1) Many national and international agencies use benefit-cost analysis to evaluate proposed development projects. More complete analyses that incorporate environmental costs and benefits on equal terms with commercial commodities will serve to eliminate some environmentally devastating projects. (2) Benefits and costs are often considered (although perhaps not as formally as in project evaluation) when policy choices are made. Information on the value of environmental goods and services will tend to encourage the choice of environmentally sensitive policies. (3) Policy becomes effective when it is translated into incentives that direct public or private decisions. Because the choice of appropriate incentives is often empirical, valuation research must underlie that choice.
The valuation of environmental goods and services is usually performed in the framework of benefit-cost analysis. A complete benefit-cost analysis must include all relevant environmental costs and benefits. However, the project analyses traditionally employed by many development agencies pay scant attention to environmental costs or benefits and as a result are biased toward a narrow conception of ''development.''
A recent study (Peters et al., 1989) shows how merely expanding standard benefit-cost analysis to include the instrumental value of minor products can have significant management implications. In their study of the Peruvian Amazon, the value of harvestable fruits from the forest was calculated on the basis of local market prices and compared to the value of managing the forest for timber or converting it to cattle ranching. The results show that even without including environmental externalities, which would decrease the benefit values for both forestry and cattle ranching, the revenue from extractive fruit harvesting was about double that projected at current market prices for the other two land management options.
Valuation of environmental goods and services is a challenging task, and methods are continually evolving and developing*. Several methods have been recognized in the professional literature and in federal government documents (e.g., see the Principles and Guidelines
Definitions: Valuation Terminology
Valuation. Valuation refers to the process and procedures by which the value of nonmarketed goods and amenities is estimated, so as to be comparable with the value of marketed items.
Benefit-Cost Analysis. Benefit-cost analysis refers to an economic analysis to determine if the estimated present value of benefits from some proposed project or policy exceeds its estimated costs. Benefits and costs are defined broadly to include all the goods, services, and amenities that people care about, whether or not these items are customarily bought and sold in markets.
Use Value. Use value refers to the value of environmental services in use. These services—visitation, recreation, nature study, etc.—have use value just as does the direct harvesting of natural resources.
Existence Value. People may be willing to sacrifice income to ensure the continued existence of natural objects and environments they never actually expect to use. Such objects and environments are said to have positive existence value.
Option Price. Option price is the amount that people would pay in advance to guarantee an option for future use of some environmental amenity whose availability would otherwise be uncertain.
Option Value. Until recently, economists frequently asserted that option price could be broken down into two components: expected value and option value. Expected value was the mathematical expectation of use values in an uncertain situation; risk-neutral people would be willing to pay, in advance, the expected value. Option value was the premium that risk-averse people would be willing to pay in addition to expected value. Recent literature has challenged this formulation, and option value is currently a highly controversial concept.
for Evaluating Proposed Federal Water Resources Projects and the compensation provisions of the Comprehensive Environmental Response, Compensation, and Liability Act).
Briefly, valuation methods fall into three categories. Rather standard market-based economic analyses can be used to evaluate environmental
goods that are close substitutes for ordinary commodities. Second, market observations can be analyzed (e.g., via the travel cost method or hedonic price analysis) to infer the value of related environmental goods. Finally, contingent valuation can be used to value environmental goods in simulated choice situations (e.g., contingent markets or contingent referenda). These methods attempt to ascertain the tradeoffs that citizens are willing to make between environmental goods and other kinds of commodities. Hundreds of such empirical assessments have been undertaken in the United States and other industrialized countries.
Recently, economists have tried to define a total valuation approach that includes existence value and various kinds of use values in a coherent structure (see Randall, 1991a). A total valuation structure may be developed for situations of uncertain demand and availability, in which case it subsumes the concepts of option price and option value.
Some economists have also begun to explore methods by which the rights of future generations to biological diversity might be better assured. This approach rests on the argument that unless these rights are considered and protected, exercises in valuation will be limited by the current generation's understanding, behavior, and preferences. In effect, the perspective shifts emphasis away from devising means to internalize externalities and toward the transfer of natural assets to future generations. Others have suggested that the same goal can be
Definitions: Valuation Methods
Hedonic Price Analysis. Hedonic price analysis uses economic and statistical analyses to estimate implicit values, including environmental values. Local wage rates and housing prices, for example, may reflect local environmental quality.
Travel Cost Method. The expenditures people make to get to particular sites contain information about the value of the amenities (e.g., recreation, sightseeing, nature study) available at those sites. This method analyzes these travel-related expenditures to estimate environmental values.
Contingent Valuation. Simulated markets or policy choice situations (e.g., referenda) are created, and citizens are asked to report the trade-offs between, for example, environmental goods and income that they would find acceptable. Responses are analyzed to estimate environmental values.
achieved by empowering members of the current generation or existing institutions to serve as guardians for the welfare of future generations or by devising some safe minimum standard (SMS) of resource protection (Norgaard, 1991; Randall, 1991b).
Only recently have these methods and considerations been applied to the valuation of biodiversity in developing nations. Although some obvious impediments exist (they require the use of—or at least familiarity with—well-developed political institutions and market mechanisms, which may be absent in some developing countries), clear signals that such research is demanded in the developing nations will encourage increased effort and lead to significant progress. Valuation of environmental goods in developing nations is a challenging task, but not an impossible one.
Determining the total value for a natural resource is only the first step toward conservation of that resource. This information can be used in project evaluation (where it might serve to eliminate projects that would devastate biodiversity), in policy analysis (where it might provide additional credibility to claims on behalf of biodiversity), and in the development of incentives (where it might capture and distribute values so as to reward actions that enhance biodiversity).
For example, the potential tourism value of a coral reef may be high, but unless there is a tourist industry capable of capturing that value and allocating it not only to hotel developers but also to local people who rely on the reef for their livelihood, the reef may succumb to less environmentally desirable management practices. Similarly, reporting an existence value of $5 million dollars for a Brazilian rain forest may do little to encourage its conservation unless there is a mechanism or institution to capture that value and distribute it to those who will have to forgo the benefits of other management options. The highest values for many biologically diverse and unique ecosystems are likely to be existence and option values—values for what are essentially public goods. Up to this point, however, the conservation and development communities have achieved only limited success in establishing effective institutions to finance and provide public goods in the international context.
The following areas of research on valuation related to the conservation of biological diversity are recommended for increased attention:
Review the literature on natural resource valuation methods to identify potentially effective applications in the developing nations.
Conduct pilot studies, using each of the established methods.
Although contingent valuation is likely to have the broadest applicability, hedonic price analysis and the travel cost method should not be ignored. Efforts to adapt the policy choice referendum form of contingent valuation may be especially rewarding.
Develop methods, procedures, and guidelines for systematically incorporating biodiversity and other environmental values in routine project evaluations.
Because the public interest in conserving biodiversity extends beyond national boundaries, research should explore the possibility of worldwide "demand" for conservation (e.g., the degree to which Americans, Europeans, and Asians are willing to pay to preserve Amazonian forest or Arctic ecosystems).
Determine who captures resource benefits at present. For example, which groups gain direct economic benefits? Do they employ local workers? What percentage of beneficiaries are natives?
Determine those institutions that can capture the values associated with different land use options and conservation practices. Use gaming methods to determine how modifications of these institutions would change their ability to capture the value of conservation.
Conduct comparative studies on the value of traditional and nontraditional market uses of natural resources and biologically diverse ecosystems.
Calculate how the inclusion of environmental externalities in royalties or stumpage fees affects the rate of resource depletion and profits for the owner.
Identify the international institutions that do or could capture the value of conserving biodiversity.
Determine whether the value of natural capital increases when it complements man-made capital and vice versa. For example, how does the value of a dam increase when there is a forest upstream? Is the forest worth more when there is a dam at the base of the watershed?
Undertake research on the intergenerational economics of biodiversity conservation and of sustainable development in general, and on the means by which the rights of future generations might be incorporated into valuation analyses and incentive programs.
Research on Economic Incentives and Disincentives
Incentives and disincentives can sometimes be used to induce governments, local people, and international organizations to conserve biological diversity. To be effective stimuli for conservation, incentives must be applied to all levels of society that affect the rate of resource depletion—community, state, and national. They must also provide benefits perceived as equal to the benefits obtained from resource
depletion. To date, perverse incentives, those that induce behaviors that deplete biodiversity, have been much more effective than incentive systems that promote conservation (McNeely, 1988; Repetto and Gillis, 1988). In fact, some argue that the rate of resource depletion could be curbed drastically by simply removing the incentives that perpetuate inefficiency in production systems.
Positive incentives can be either direct (under which those that forgo the option to deplete are paid directly for conservation) or indirect (under which benefits arise from the installation of conservation policies). A direct incentive may involve, for example, the employment of local people to manage and act as guides in forest reserves. An indirect incentive was put in place, to cite an actual case, when the Yucatan government in Mexico gave local communities the exclusive rights to use and manage a coastal area that was being overharvested for spiny lobster. Once ownership of the resource was in the hands of the community, overharvesting ceased. Similarly, dependence on the use of chemical fertilizers, which can lead to degraded soil structure, accelerated erosion rates, groundwater contamination, and the loss of soil biodiversity, could be discouraged by removing subsidies and adding a small tax to chemical fertilizers while providing a small subsidy for the use of nonchemical fertilizers and for conversion to sustainable agricultural technologies.
Effective disincentives require (1) knowledge of the effects of management activities on the environment, and (2) regulatory and judicial institutions able to design and enforce the disincentive system. Endangered species laws, which fine individuals and impose trade restrictions on nations that permit exploitation of endangered species, provide an excellent example of disincentives. Although some developing nations have environmental ministries and conservation laws, most do not. Those that do often provide inadequate resources to the regulatory institutions or lack the political will to enforce existing regulations.
Successful incentive or disincentive strategies must also be attuned to macroeconomic conditions and able to respond as those conditions change. This is illustrated, for example, in the economics of logging and replanting in Indonesia. The present value of dipterocarp tropical hardwood logs harvested from East Kalimantan forests in Indonesia is $100 per cubic meter, yielding on average 40 cubic meters per hectare with a total value of about $4,000. The cost of reforesting cutover areas averages $1000 per hectare. Until recently, however, the refundable replanting fee that loggers had to pay was only about $160 per hectare ($4 per cubic meter × 40 cubic meters). As a result, loggers chose to pay the fee rather than replant and receive the refund. The fees were not sufficient to encourage replanting of the area harvested. Recently,
the government increased the replanting fee to $7 per cubic meter and made it nonrefundable. Fees are earmarked for rehabilitating degraded areas (such as Imperata grasslands) while the concessionaires are still responsible for replanting their concessions.
A relatively new disincentive system involves environmental bonding , wherein a company or institution wishing to exploit a natural resource or utilize an environmental service posts a bond. The size of the bond must be sufficient to cover the costs of lost production and site rehabilitation should the worst possible environmental disaster associated with that exploitation occur. For example, a logging company might be required to post a bond large enough to cover the costs of reclamation and revegetation of the area it plans to cut. The company would be eligible for a refund of part of the bond for each year in which the worst-case scenario did not transpire.
Environmental bonding places the burden of proof that no harm will occur on the resource exploiter. It ensures that sufficient resources will be available for rehabilitation should disaster strike, and it encourages the exploiter to conduct research to decrease the degree of uncertainty associated with the occurrence of the worst-case scenario as a justification for a reduction in bond size (Costanza and Perrings, 1991). To date, bonding has been tested sparingly in industrialized countries and remains an untested disincentive system for conservation in developing nations.
The following areas of research on the effect and application of incentives and disincentives to issues of biological diversity are recommended for increased attention:
Evaluate the effectiveness of existing disincentive systems and laws.
Document and explain cases in which incentive systems have successfully conserved biodiversity.
Determine how to adjust incentive systems to achieve a more efficient and sustainable allocation of resources.
Determine how incentives can be used in biodiversity restoration efforts in degraded systems.
Identify institutional constraints on the implementation of incentive systems at the local and national level, and develop strategies for the elimination or mitigation of these constraints.
Determine whether price fluctuations in agricultural commodities function as perverse incentives for agricultural expansion into natural areas.
INTERNATIONAL-LEVEL ECONOMIC RESEARCH
The areas of economic research noted above—causal mechanisms, valuation, and incentives/disincentives—pertain primarily to national and local level activities. However, many of the forces that profoundly affect local practices and national economic policies, and hence the depletion or conservation of biodiversity within a country, are transnational in origin. The relationship between these forces and natural resource exploitation within a country is poorly understood. Therefore, more research is needed that focuses on the interface between national and international economic factors, institutions, trends, and impacts. The following areas of international-level economic research on issues relevant to the conservation of biological diversity are recommended for increased attention:
Determine the impact of inflation, tight money, external debt, and market instability on the rate of natural resource depletion.
Evaluate how these factors affect the efficacy of incentive and disincentive systems.
Examine if and how trade barriers and most-favored nation status impact exploitation of natural resources.
Determine the effects on internal economic stability and national support for conservation through debt-for-nature trades and other financing instruments that link national and international financial organizations.
GLOBAL ECONOMIC RESEARCH
Some issues and actions that result from the interrelationship between economics and biodiversity can be addressed only at the global level. For example, many developing nations may simply be unable to fund conservation activities at the level required or to support the types of direct incentive programs that would be effective in conserving biological diversity within their boundaries. Biodiversity is a global resource, and multinational and multi-institutional efforts will be required to supplement and complement attempts at the national or project level to conserve it. Therefore, more research is needed that focuses on macroeconomic forces operating on a global scale. The following research topics that address the conservation of biodiversity on a global scale are recommended for increased attention:
Identify the worldwide constituency for conserving biodiversity.
Determine how different types of institutions compare in their
efficiency and adequacy in handling the uncertainty associated with environmental manipulations.
Study the impacts of rapid growth of international financial flows and markets on the environment in general, and on biodiversity in particular, in developing nations. For example, what effect do reforms mandated by the International Monetary Fund—including structural and sectoral adjustment programs and other liberalization reforms—have on biological resource depletion in debtor nations?
Document how policies and management for macroeconomic objectives can lead to mismanagement of economics based mainly on biological resources, particularly local microeconomies.
Compare the kind and degree of impacts associated with free-market and planned economies with respect to natural resource depletion.
Identify the global economic factors critical to sustainability in developing countries, and their relationship to social and environmental factors. Especially important in this regard are case studies in sustainable and unsustainable development. This may lead to the formulation of alternative resource indicators that can be compared to prices in monitoring changing resource scarcity.
OPPORTUNITIES FOR ACTION
The long-term conservation of biological diversity in developing countries will require biological and social research of the sort described elsewhere in this report. Most of the economic research described in this chapter, however, is intended to stimulate immediate action to stem the loss of biological diversity. Innovative valuation research can help to ensure that environmental goods, services, and amenities do not go undervalued, and hence underrepresented, in the economic assessment of development projects and policies. Causal mechanism analysis and research on economic incentives and disincentives can lead to the rectification of current policies and the development of constructive new measures. This action-oriented approach should guide all those who undertake the conservation of biological diversity from the economic perspective, even as the natural sciences and the other social sciences continue to provide the basic facts concerning life's diversity.