R. David Simpson

The Cost-Effectiveness of Conservation Payments

International donors invest billions of dollars to conserve ecosystems in low-income nations. The most common investments aim to encourage commercial activities, such as ecotourism, that indirectly generate ecosystem protection as a joint product. We demonstrate that paying for ecosystem protection directly can be far more cost-effective. Although direct-payment initiatives have imposing institutional requirements, we argue that all conservation initiatives face similar challenges. Thus conservation practitioners would be well advised to implement the first-best direct-payment approach, rather than a second-best policy option. An empirical example illustrates the spectacular cost savings that can be realized by direct-payment initiatives. (JEL H21, Q28)

Optimal Pollution Taxation in a Cournot Duopoly

It is well known that the optimal pollution tax in a competitive industry is equal to the marginal damage inflicted by the pollution. It has also been shown that the optimal pollution tax on a monopoly is less than the marginal damage. In this paper, I derive the optimal pollution tax for a Cournot duopoly. If firms have different production costs, the optimal tax rate may exceed the marginal damage. This is so because the tax may be an effective instrument for allocating production from the less to the more efficient firm. It is also shown that, if one firm has a positive most preferred pollution tax, the sum of consumer and producer surpluses will be declining in the tax at this level.

Paying for the conservation of endangered ecosystems: a comparison of direct and indirect approaches

A number of international conservation donors support efforts to encourage conservation indirectly by subsidizing commercial activities. Such plans beg two questions. First, if commercial ventures are expected to be profitable, why is external financing necessary for their initiation? Second, if commercial ventures are not expected to be profitable, could not greater incentives for conservation be generated by making direct payments? We examine these questions in detail. While we find that the practical impediments to instituting a direct payment programme may be substantial, the practical impediments to instituting any effective conservation programme may be substantial. On balance, there is a strong case to be made for greater experimentation with direct payment schemes than heretofore.

Protecting forests and biodiversity: Are investments in eco-friendly production activities the best way to protect endangered ecosystems and enhance rural livelihoods?

ABSTRACT A debate has been raging in recent years among conservation practitioners and advocates. What are the most effective mechanisms for preserving the imperiled forest habitats that shelter most of the worlds terrestrial biodiversity? In the past few decades most money has been going into “indirect” interventions such as “Integrated Conservation and Development Programs”. While no one could object to efforts to achieve such worthy goals, several authors suggest that more “direct” approaches—payments in exchange for conservation performance—would better achieve conservation objectives. We argue here that direct incentives might better achieve both conservation and development objectives. While the problems facing both conservation practitioners and development specialists are indeed daunting, we feel that the arguments for direct approaches are compelling both as conceptual propositions and as practical policy advice.

Cost-effective conservation when eco-entrepreneurs have market power

International conservation investments are often made in the form of subsidies to purportedly eco-friendly enterprises rather than as payments conditional on habitat protection. Previous research demonstrated that direct payments for habitat protection are more cost effective than indirect subsidies for the acquisition of com-plementary inputs used in eco-friendly enterprises. In contrast to this earlier research, we assume in this paper that an ‘eco-entrepreneur’ may have market power. Market power is shown to compound the advantage of direct payments. Through a simple numerical example, we show that subsidies intended to achieve habitat conservation by encouraging the acquisition of complementary inputs can be spectacularly inefficient. In some cases it would be cheaper simply to buy the land outright. In other plausible cases, the indirect subsidy approach would simply be unable to achieve habitat conservation objectives no matter how much funding were available.

Economics and biodiversity conservation options: an argument for continued experimentation and measured expectations

The paper explores the costs of alternative habitat conservation policies, including fee-simple acquisition, easements, tax incentives, and tradable development rights. We argue first that the baseline cost of preservation is invariant to the conservation policy used. In all cases, the baseline cost of conservation is the value of economically useful activities foregone in order to preserve habitat. There are differences, however, primarily in the transactional and institutional costs that arise when the policies are implemented. We explore these differences and illustrate them specifically with an analysis of conservation easements.

The simple but not-too-simple valuation of ecosystem services: basic principles and an illustrative example

ABSTRACT Albert Einstein is reputed to have said ‘Everything should be made as simple as possible, but not simpler.’ This is good advice for valuing ecosystem services. The fundamental principle of economic valuation is simple, but powerful: value is determined on the margin. This means that context is crucial in estimating ecosystem service values and, therefore, ‘benefit transfer’ exercises that fail to account for location and relative abundance are, at best, meaningless, and at worst, counterproductive. I illustrate the principles of valuation with the example of water purification by riparian buffers. Values can differ greatly over even relatively small areas, and some ostensibly paradoxical results can arise.