The economics of biodiversity and ecosystem services

Biodiversity conservation confers social benefits at many levels. Although the gene pool is a global public good, many of the ecosystem services supported by biodiversity are regional or even local public goods. At all levels, biodiversity underpins the capacity of the system to deliver services over a range of environmental conditions. The economic problem addressed in this chapter is how to correct for (a) the failure of markets to signal the true cost of biodiversity change in terms of ecosystem services, (b) the failure of governance systems to regulate access to the biodiversity embedded in 'common pool' environmental assets, and (c) the failure of communities to invest in biodiversity conservation as an ecological 'public good'. The chapter reviews both the nature of the challenges posed by these failures, and the options for addressing them. It requires that we are able to correctly identify both the private and social decision problems, and hence that we are able to value those non-marketed environmental effects that are ignored in many private decisions. It further requires that we are able to identify governance mechanisms, institutions, and instruments that will induce private decision-makers to behave in ways that are consistent with the social interest. This chapter focuses on the institutional and policy options for securing the socially optimal mix of species, given the role of biodiversity in assuring ecosystem services over a range of environmental conditions.