Coordinating investments in habitat management and economic development

Development generates environmental externalities when it degrades or destroys habitat and damages ecosystems services. In practice, governments and industry control these externalities by restricting development and/or practicing environmental management. This paper uses bioeconomic theory to examine strategies that optimally balance economic production and habitat management. Our results suggest that while habitat management may be an ecological substitute for less economic development, the efficient coordinated conservation scheme in the social planner’s problem treats them as economic complements over the course of a recovery program, such as for imperiled species. However, resource managers should substitute toward habitat management if they cannot efficiently coordinate habitat management and economic development. We illustrate our results with an application to the lesser prairie chicken, an imperiled bird species in the U.S. Great Plains.