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The Social Value of Using Biodiversity in New Pharmaceutical Product Research

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  • Simpson, R. David
  • Craft, Amy

Abstract

Biologists and conservation advocates have expressed grave concern over perceived threats to biological diversity. "Biodiversity prospecting"—the search among naturally occurring organisms for new products of agricultural, industrial, and, particularly, pharmaceutical value—has been advanced as both a mechanism and a motive for conserving biological diversity. Economists and others have attempted to estimate the value of biodiversity for use in new pharmaceutical project research. Most of these existing approaches are incomplete, however, as they have not yet considered full social welfare, i.e., both consumer surplus and profit. This paper addresses social welfare by calibrating a model of competition between differentiated products with data from the pharmaceutical industry. We find that the magnitude of losses from even catastrophic declines in biodiversity are negligible in comparison to the value of world production. While social values of biodiversity prospecting might motivate habitat conservation in some areas, these values are likely to be small relative to land value in other uses in even some of the more biologically rich regions of the world.

Suggested Citation

  • Simpson, R. David & Craft, Amy, 1996. "The Social Value of Using Biodiversity in New Pharmaceutical Product Research," Discussion Papers dp-96-33, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-96-33
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-96-33.pdf
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    References listed on IDEAS

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    1. Solow Andrew & Polasky Stephen & Broadus James, 1993. "On the Measurement of Biological Diversity," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 60-68, January.
    2. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    3. Dasgupta, Partha & Maskin, Eric, 1987. "The Simple Economics of Research Portfolios," Economic Journal, Royal Economic Society, vol. 97(387), pages 581-595, September.
    4. Brown, Gardner Jr. & Goldstein, Jon H., 1984. "A model for valuing endangered species," Journal of Environmental Economics and Management, Elsevier, vol. 11(4), pages 303-309, December.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. Martin L. Weitzman, 1992. "On Diversity," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 363-405.
    7. Polasky Stephen & Solow Andrew R., 1995. "On the Value of a Collection of Species," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 298-303, November.
    8. Martin L. Weitzman, 1993. "What to Preserve? An Application of Diversity Theory to Crane Conservation," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 157-183.
    9. Sedjo, Roger & Simpson, R. David, 1996. "Valuation of Biodiversity for Use in New Product Research in a Model of Sequential Search," Discussion Papers dp-96-27, Resources For the Future.
    10. Sedjo, Roger & Simpson, R. David, 1996. "Investments in Biodiversity Prospecting and Incentives for Conservation," Discussion Papers dp-96-14, Resources For the Future.
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    Cited by:

    1. Amy Craft & R. Simpson, 2001. "The Value of Biodiversity in Pharmaceutical Research with Differentiated Products," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(1), pages 1-17, January.
    2. van Beukering, Pieter J. H. & Cesar, Herman S. J. & Janssen, Marco A., 2003. "Economic valuation of the Leuser National Park on Sumatra, Indonesia," Ecological Economics, Elsevier, vol. 44(1), pages 43-62, February.

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