Chapter 10
The Economics of Biodiversity and Ecosystem Services
Chapter Summary
This chapter attempted to provide the economic rationale for increased global investment to protect
natural ecosystems in order to promote biodiversity conservation. The chapter started by offering a
comprehensive overview of the facts and figures that indicated the current worrisome trends in
biodiversity loss throughout the world. Other specific topics addressed in this chapter are: (i) the
direct and indirect drivers of biodiversity losses, (ii) the link between biodiversity, ecosystem
function, and ecosystem service, (iii) a generalized functional relationship between biodiversity
conservation (as measured by species richness) and ecosystem services, (iv) a conceptual framework
for identifying the first-order condition for the optimal level of biodiversity conservation, (v) a
conceptual argument for why past trends in biodiversity (ecosystems) conservation have been ‘suboptimal’, (vi) recognition of some notable international biodiversity treaties and policy targets, and
(vii) the lingering fear of mass species extinctions.
Review and Discussion Questions
1. Effective measures taken to address the loss of biodiversity should not depend on the protection
of a single or a few arbitrarily selected species, but all the native species within a given
ecosystem. Answer this question on the basis of the formal definition of biodiversity articulated
at the 1992 Convention on Biological Diversity (CBD), as stated on page 210 of your textbook.
2. Clearly differentiate between direct and indirect drivers of biodiversity. Do you find this
dichotomy helpful to your understanding of the human factors that have been responsible for
biodiversity loss? Explain.
3. In what three specific ways has humanity been able to alter the natural ecosystems with the
ultimate effect of causing significant loss of biological diversity? Please be specific.
4. As shown in Exhibit 10.1, page 211, there appears to be a mounting evidence of past and
projected losses of biodiversity. Despite this glaringly disturbing statistical evidence, the
reactions of the world community seem to be characterized by lack of urgency or ‘policy
inaction’. What do you think are the contributing factors to this perceived inaction? Could it be,
at least in part, because of the questions people have regarding the reliability of the empirical
evidence (data) pertaining to species extinctions? Explain.
5. To appreciate the economic value of biodiversity, it is critical to understand the link between
biodiversity and the flow of ecosystem services. In general, it is believed that biodiversity by
enhancing the productivity and stability of natural ecosystems would ultimately lead to increases
in the flow of ecosystem services. Make sure that you have a good understanding of the
explanations presented in Section 10.2 (pp. 212–13) to support this hypothesis.
6. Explain the following concepts:
 Ecological redundancy
 ‘Insurance value’ of biodiversity with respect to its effect on the flow of ecosystem services
 An index of species richness
7. Below you are given ‘investment’ projects on biodiversity conservation that are primarily
undertaken to increase the flow of ecosystem services. Identify the flow of the various
© 2014 Ahmed Hussen
ecosystem services that will be enhanced from each one as a result of each one of the following
investments:
 A national policy to set aside a large track of land for wilderness
 A legislative mandate to finance a large public project intended to eradicate invasive species
 Implementation of a forest management plan that favors selective cutting (as opposed to
clear cutting) of forest.
In answering the above questions, make sure to explain the reasons why each one of the above
three actions undertaken to enhance the flow of biodiversity can be regarded as ‘investment’.
8. The theoretical explanation for the existence of diminishing returns on investment in
biodiversity conservation is illustrated using Figure 10.2, page 21. Make sure you have a good
understanding of this theoretical explanation.
9. Some argue that conservation on biodiversity cannot be justified only on the basis of economic
factor (such as increased flow of ecosystem services). Your textbook offers four other
noneconomic factors that can be used to justify biodiversity conservation. What are these four
factors?
10. A distinguished British economist and a professor at the University of Cambridge, Partha
Dasgupta and his associates pointed out the following scientific flows in the mainstream
economists’ tendency to minimize the utilitarian importance of biodiversity by relying on the
notion of substitutability among natural resources in commodity production: “First, without
biodiversity, substitutability is lost entirely. And more fundamentally, certain species and groups
of species play unique roles in the functioning of ecosystems and thus have no substitutes.
Preservation of biodiversity is hence important, both to provide unique services and to provide
insurance against the loss of similarly functioning species (2000, BioScience 54, 4:339–45).” In
essence, Dasgupta’s position can be summarized this way. While factor substitutability may be
relevant in ameliorating resource scarcity among natural resources in commodity production, it
cannot be used to mitigate the loss of biodiversity. Do you agree with Dasgupta’s position on this
matter? Why or why not? Explain.
11. What would you make of this commonly quoted remark from Henry David Thoreau? “In
wilderness is the preservation of the world.”
12. In Section 10.3 (pp. 217–220), an ardent attempt is put to establish the theoretical condition for
optimal level of biodiversity conservation. In Figure 10.3 (p. 219) it is shown that this
theoretically optimal level of biodiversity conservation is reached at R*. At this point, the
marginal benefit from the last dollar invested in biodiversity conservation (measured by D2) is
equal to the marginal cost of the resources used for conservation measure (MC).
However, the main objective of Section 10.3 is not the discovery of the above theoretical
condition for optimality. Instead, it is to theoretically illustrate why if left to the market there
may be deficiency in biodiversity conservation (for example, in Figure 10.3 R1 instead of R*).
This is because the relevant demand curve that captures the benefit from biodiversity
conservation is D1 instead of D2. Since it has important policy implications, make sure you
understand the essence of this theoretical explanation for market failure.
13. As shown in Exhibit 10.5B, there have been some notable international biodiversity treaties.
However, for those who have studied this issue closely it appears that the actual positive
© 2014 Ahmed Hussen
14.
15.
16.
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contributions of existing international and regional agreements (even when they are binding) to
biodiversity conservation have been quite modest. What factors could contribute to this
unsatisfactory outcome? Discuss.
Explain how the following land conservation and preservation measures work:
 Conservation easements agreements
 Debt-for-nature swaps
 Protected areas or natural parks
Most biologically rich rainforest areas are under the jurisdiction of governments that are poor
and heavily indebted. Given this, it would be unfair to expect these countries to shoulder the
burden of the full cost of biodiversity conservation measures when the benefits from such
initiatives are shared by the entire global community. Furthermore, much of the biodiversity loss
is a result of the heavy resource consumption of the developed nations. Do you agree with this
observation? Explain.
Under what specific situations is ‘the Safe Minimum Standard’ an appropriate nature
conservation measure (rule) to use? Please be specific.
Read the following three paragraphs carefully and write an essay that captures the essence of
the narratives depicted in these paragraphs.
The past two centuries have been characterized by a rapid loss in biodiversity mainly arising
from increasingly dominant human disruption and the alteration of nature. Human
appropriation of net primary production (i.e. the amount of solar energy covered to plant
organic matter through photosynthesis) has now reached to around a third or more of potential
vegetation (Vitousek et al., Science 277, 1997). That is, one third of the earth’s resources are
eventually consumed by humans.
In reality, we haven’t escaped the gravity of life at all. We are still beholden to ecological law,
the same as any other life form. The most irrevocable of these laws says that a species cannot
occupy a niche that appropriates all resources—there must be some sharing. Any species that
ignores this law winds up destroying its community to support its own expansion. Tragically, this
has been our path. We began as a small population in a very large world and have expanded in
number and territory until we are bursting the seams of that world. There are too many of us,
and our habits are unsustainable (Benyus, Biomimicry, 1997: 5).
The emergence of new plants and animals is an ongoing process. However, as Olson (2005) put it
“that is sort of a 1 million to 4 million year process, and yet we are causing species to be lost at
rates of 100 to 1000 times factor.” What this indicates, as many scientists have already declared,
is that unless something drastic is done to reverse recent trends of species extinctions, human
activity is destined to cause a ‘sixth extinction’, that is, a mass extinction of severity equivalent
to any of the previous five large-scale extinctions that have been evident through survey of the
fossil record. Almost all of the past large-scale species extinctions appear to be due to geological
processes or possibly the impact of asteroids. For the first time, humans (a single species) are on
the verge of creating an unimagined calamity of epic proportions.
© 2014 Ahmed Hussen