The Economics of Biodiversity

The conservation of biodiversity is a major environmental issue, one that promises to remain at or near the top of the environmental agenda for the foreseeable future. The loss of biodiversity affects human welfare as well as being lamentable for its own sake. Humans depend on natural systems to produce a wide variety of ecosystem goods and services, ranging from direct use of certain species for food or medicines to ecosystem functions that provide water purification, nutrient retention or climate regulation. Threats to biodiversity include habitat loss and fragmentation, the introduction of nonindigenous species, over-harvesting, pollution, changes in geochemical cycles and climate change. Sustaining biodiversity in the face of increasing human populations and increased human economic activity promises to be a major challenge. Economists have an important role to play in helping to develop and evaluate conservation strategies. Because biodiversity is at risk in large part because of human activity, finding ways to conserve biodiversity will come from better understanding and management of human affairs, not from better biology alone. Economists can help set priorities to allocate scarce conservation resources where they will do the most good. Economists can help design incentive schemes to make conservation policy both effective and efficient. Economic methods can shed light on what are the most valuable components of biodiversity, including analysis of species existence value, the value of bioprospecting and the value of ecosystem services.