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Stream ecosystem service markets under no-net-loss regulation

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  • Doyle, Martin W.
  • Yates, Andrew J.

Abstract

We analyze interactions between economics and ecology for ecosystem service markets under no-net-loss regulation. Previous studies of no-net-loss regulation address the ecological efficacy and valuation of restoration but largely ignore the effects of market dynamics. We link an economic model of free-entry equilibria with an ecological model that includes returns to scale and inefficiency of restored ecosystems and apply the result to stream mitigation banking in North Carolina. Intuition from ecology alone must be modified to account for economic processes, and vice versa. To implement no-net-loss regulation, one must not only account for ecological differences between restored and natural ecosystems, but also consider the effect of market entry on the number and size of restoration projects. In a purely economic model, free-entry equilibria are characterized by excess entry: the equilibrium number of firms is greater than the welfare maximizing number. Ecological considerations may exacerbate or ameliorate this, so that either excess entry or insufficient entry may occur, depending on the specific ecosystem services sought.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 69 (2010)
Issue (Month): 4 (February)
Pages: 820-827

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Handle: RePEc:eee:ecolec:v:69:y:2010:i:4:p:820-827

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Web page: http://www.elsevier.com/locate/ecolecon

Related research

Keywords: Ecological-economic Streams Free-entry No-net-loss regulation;

References

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  1. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  2. Richard D. Horan & James S. Shortle, 2005. "When Two Wrongs Make a Right: Second-Best Point-Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 340-352.
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  7. Hallwood, Paul, 2007. "Contractual difficulties in environmental management: The case of wetland mitigation banking," Ecological Economics, Elsevier, vol. 63(2-3), pages 446-451, August.
  8. Yang, Wu & Chang, Jie & Xu, Bin & Peng, Changhui & Ge, Ying, 2008. "Ecosystem service value assessment for constructed wetlands: A case study in Hangzhou, China," Ecological Economics, Elsevier, vol. 68(1-2), pages 116-125, December.
  9. Boyd, James & Banzhaf, H. Spencer, 2006. "What Are Ecosystem Services?," Discussion Papers dp-06-02, Resources For the Future.
  10. Linda Fernandez & Larry Karp, 1998. "Restoring Wetlands Through Wetlands Mitigation Banks," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(3), pages 323-344, October.
  11. Holmes, Thomas P. & Bergstrom, John C. & Huszar, Eric & Kask, Susan B. & Orr, Fritz III, 2004. "Contingent valuation, net marginal benefits, and the scale of riparian ecosystem restoration," Ecological Economics, Elsevier, vol. 49(1), pages 19-30, May.
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