Economic Policy for Invasive Species
Biological invasions are classical examples of externalities. The risks and damages from biological invasions are endogenous, depending on how society protects itself from invasions, and how it reacts to them after they occur. This paper analyzes a dynamic model in which society can undertake a flow of expenditures to protect against a biological invasion, which continue until an invasion actually occurs, in which case society can undertake a flow of expenditures to control or reduce the damage. The trade-off between these policies is highlighted by the fact that it is optimal to undertake expenditures to protect against the invasion if and only if the cost of the invasion is large enough. This result holds if the cost of the invasion is known initially either with certainty or only in distribution. No protection is more likely to be optimal the larger is either the natural hazard rate of the invasion or the discount rate.
|Date of creation:||Jul 2012|
|Date of revision:||Jul 2012|
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