Loss of biodiversity is regarded as one of the key problems affecting the environment. In order to demonstrate the significance of biodiversity, the value of individual species or ecosystems today is generally determined in science and practice. The underlying thought is that a species or ecosystem is worthy of being conserved provided its value exceeds the benefit of its loss. This is, at first glance, a rational line of thought typical of economists. As this study shows, however, this way of looking at the situation is inadequate. Biodiversity, rather like a share portfolio or a portfolio of insurance risks, is concerned with a portfolio of different genes, species or ecosystems. The finding from portfolio theory that in portfolios returns are additive whereas risks diversify and that well managed portfolios frequently also contain securities which, viewed in isolation, appear to hold little attraction, is now generally acknowledged in the management of securities. Portfolio theory is not currently brought into discussions on biodiversity issues, and that is regrettable. The way in which biodiversity is generally viewed at present lags more than fifty years behind securities management. This study shows how portfolio managers would look at and manage biodiversity. Probably the most surprising and provocative finding is that it may be assumed that portfolio managers would conserve more species than appears appropriate from the way the situation is usually viewed at present.
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Paper provided by EconWPA in its series Others with number
0408007.
Find related papers by JEL classification: P - Economic Systems Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics Z - Other Special Topics
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