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Municipal Finance and Biodiversity Conservation

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  • Chen, Luoye
  • Li, Tao
  • Zhang, Yi

Abstract

We investigate the relationship between biodiversity and municipal finance. At the county level, municipalities experience higher borrowing costs due to increased biodiversity exposure, significantly affecting both intensive and extensive margins. A one-standard-deviation increase in biodiversity exposure raises municipal bond yields by 42.4 (63.3) basis points (bps) dependent on the ecological and economic controls, while the extensive margin of bond issuance decreases by 0.61%. Our analysis highlights pricing heterogeneity based on regional species protection awareness finding that species awareness facilitates to mitigate the financial cost. This economic mechanism is driven by the effect of biodiversity conservation over real estate market, reflected in enriched biodiversity and lower credit ratings. Utilizing the federal Endangered Species Act (ESA) as an exogenous shock, we causally identify that the observed pricing pattern results from stringent species protection policies.

Suggested Citation

  • Chen, Luoye & Li, Tao & Zhang, Yi, 2025. "Municipal Finance and Biodiversity Conservation," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360756, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:360756
    DOI: 10.22004/ag.econ.360756
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