toward a global effort to protect the earth's biological diversity

World Development, Vol. 21, No. 12, pp. 1931-1945, 1993 Printed in Great Britain.

0305-750X/93 $6.00 + 0.00 Pergamon Press Ltd

Toward a Global Effort to Protect the Earth’s

Biological Diversity

JAMES A. TOBEY” Organization for Economic Cooperation and Development, Paris

Summary. - The preservation of biological diversity is discussed from a global perspective, with a focus on tropical deforestation. Economic issues in tropical deforestation, market failure, and the costs and benefits of preserving biological diversity are surveyed. It is found using a straightforward economic model based on the cost-benefit criterion that industrialized countries can realize “gains-from-trade” by financing preservation of biological diversity in tropical developing countries. This provides a strictly economic rationale for the introduction of an international system to transfer funds for the protection of biological diversity in developing countries.

1. INTRODUCTION

Biological diversity refers to the variety of living organisms and represents the Earth’s natural stock of genetic material. The greater the variety of genetic material, the greater the variety of organisms that exist or will exist in the near future. The variety of genetic material is not static, it has been slowly and naturally evolving since the beginning of life. Human activities also shape the natural stock of genetic material. In the past, when the Earth’s natural abundance seemed boundless, there was little concern over the effects of human activities on the world’s stock of biological diversity. It is only recently that we have come to recognize the relative “smallness” of the planet and the tremendous effect of human activities on species extinction. The renowned biologist E. 0. Wilson observes that “current reduction of diversity seems destined to approach that of the great natural catastro- phes at the end of the Palaeozoic and Nesozoic eras - in other words, the most extreme in the past 65 million years” (Wilson, 1988, pp. 11-12).

The recognition that species and their habitat are rapidly becoming extinct has generated many professional conferences and landmark studies on the problem (e.g., IUCN, 1980; OTA, 1987; Wilson, 1988) and has begun to affect the environmental management priorities of the world’s environmental and development agencies. Many governments are in fact beginning to attach as much importance to reducing ecological risk as they do to reducing risk to human health.’ These changes in environmental management priorities imply that the focus of environmental man-

agement will increasingly be directed toward the preservation of natural ecosystems and wildlife.

Attention to the problem is also evident at the global level. Both the 1972 Convention for the Protection of the World Cultural and Natural Heritage, and the 1973 Convention of International Trade in Endangered Species of Wild Fauna and Flora (CITES) seek to preserve wild species and ecological systems. More recently, the signing of the Convention on Biological Diversity was one of the principal accom- plishments of the 1992 United Nations Conference on Environment and Development (the “Earth Summit”) in Rio de Janeiro. The Convention contains the stated objective of the preservation of biological diversity and the sustainable use of genetic resources.

This paper takes up the issue of the preservation of biological diversity from a global economic perspective, with a concentration on tropical closed forests because of their importance as a reservoir of species diversity. Section 2 surveys the economic issues in tropical deforestation. In sections 3 and 4 a global cost-benefit model of biological diversity preservation is presented. It is found that industrialized coun-

* This paper was written while the author was with the United States Department of Agriculture, Economic Research Service. The views expressed in this paper are the author’s own and do not necessarily represent those of the United States Department of Agriculture or the Organization for Economic Cooperation and Development. The author is grateful for the helpful comments of Joe Cooper, Bruce Aylward, and two anonymous referees. Final revision accepted: July 9, 1993.

1931

1932 WORLD DEVELOPMENT

tries can realize “gains-from-trade” by financing preservation of biological diversity in tropical developing countries. In effect, it is cheaper for the industrialized countries to purchase the preservation of biological diversity in tropical developing countries than at home. This provides a strictly economic rationale for the introduction of an international system to transfer funds for the protection of biological diversity in developing countries. Section 5 discusses the institutional and financial requirements for such a system of international transfers. Finally, in section 6 the difficulties in translating the costs and benefits of preserving biological diversity to numerical estimates are identified.

2. HABITAT MODIFICATION IN TROPICAL CLOSED FORESTS: A GRAPHICAL MODEL

Species become endangered or extinct for a wide variety of reasons related to human activities.* Among the many causes of extinction of wild plant and animal species, the process of land-use change is recognized as the most significant (McNeely et al., 1990). As Sedjo (1992a) observes, land-use changes destroy existing habitat and often inadvertently drive to extinction individual organisms, many as yet undiscovered, that are endemic to certain ecological niches. The loss of tropical closed canopy forest is particularly critical at the global level, for it is here that some 50% of the Earth’s species are contained (Myers, 1988).

Figure 1 presents a simplified graphical model of the habitat conversion process involving tropical closed forests. The vertical axis represents the return to converted forestland. The horizontal axis represents the amount of converted forestland. In our simplified model, the two relationships that determine the equilibrium combination of forested and converted land are the demand and supply for converted forestland. The demand for converted forestland, D, represents the value of the marginal product (marginal benefits) of converted land. The supply curve, 5, represents the

0

Figure 1. Supply and demand for converted tropical forest.

cost of forest conversion, or land rent when the forest is left standing plus real conversion costs. In Figure 1 equilibrium occurs at point E, giving OMof converted forestland. If OT represents the total tropical forestland that was originally available before the process of human conversion began, then the distance MT represents the remaining forested area that could be converted.

Table 1 shows estimates from a frequently cited United Nations Food and Agriculture Organization study (FAO, 198 1) of remaining tropical forestland by country and region. Over half of the world’s tropical forests are located in Latin America (679 million hectares), primarily in the Amazon basin, with the remainder split between Africa (217 million hectares) and Asia (316 million hectares). Significantly, for preservation efforts, almost 50% of this area is located in just three countries: Brazil, Indonesia, and Zaire. Among these, Brazil has by far the largest area of tropical forest with 357 million hectares, in excess of three times more forest than the next largest country which is Indonesia. These countries have also been identified as “megadiversity” countries by the World Wildlife Fund (Mittermeier, 1988).

All existing data indicate that the equilibrium point E in Figure 1 is not stable. Estimates of deforestation rates indicate that roughly 1% of tropical forestland is eliminated each year and that another 1% is significantly degraded (FAO, 1981).3 At a 2% rate of forest conversion, total forest area would be reduced by 50% in about 35 years. Shifts in the derived demand for converted tropical forest drive the current rapid rates of deforestation in tropical countries. Changes in the derived demand for converted tropical forest may, for example, shift the demand curve out (from D to D, in Figure 1) and result in a new, higher, equilibrium level of converted tropical forest (ON of converted forestland, corresponding to E,).

(a) Demand for converted tropical forestland

The sources of derived demand for converted tropical forestland are principally related to the domestic needs of poor landless farmers, and commercial timber and livestock interests. Small-scale farming is a primary cause of tropical deforestation in land-scarce countries of Central America, Central and East Africa, and South Asia, representing roughly 60% of annual clearing (World Bank, 1992b). Poor farmers live at the margin and their survival generally depends on shifting slash and bum agriculture to grow crops. The extent of agricultural extensification onto tropical forests can be important on the margin. Amelung (1991) estimates that tropical forest converted during 198 l-88 accounted for more than 5% of total agricultural land in Indonesia. Brazil, Ecuador, Suriname, Ivory Coast, Guatemala, Costa Rica, Thailand, and

BIOLOGICAL DIVERSITY 1933

Table 1. Tropical forest area of selected countries

Country

Closed forest area

WOO ha)

Tropical Africa: Zaire Congo Gabon Cameroon Madagascar Nigeria Cote d’Ivoire Ethiopia

105,750 21,340 20,500 17,920 10,300 5,950 4,458 4,350

Tropical America: Brazil 357,480 Peru 69,680 Colombia 46,400 Mexico 46,250 Bolivia 44,010 Venezuela 31,870 Guyana 18,475 Suriname 14,830

Country

Tropical Asia: Indonesia

(l,zha)

113,895 India 51,841 Paoua New Guinea 34,230 Burma 31,941 Malaysia 20,995 Philippines 9,510 Thailand 9,235 Viet Narn 8.770

Total 216,643 Total 678,655 Total 305,510

Country

Closed forest area

(1,000 ha)

Closed forest

Source: FAO (1981).

Cameroon in 1988. In many tropical countries economic stagnation and population pressures in settled areas provides the impetus for a continuing flood of migrants who seek new livelihoods on forest frontiers. Public sector support of road construction and other resettlement infrastructure further promotes this inter- nal migration.

Forests are also used for their fuelwood by the rural poor. Some 70% of the people in developing countries, most of whom live in rural areas, depend on fuelwood to meet their household needs (World Resources Institute, 1992). The problem of deforestation due to fuelwood demand is most severe near large settled areas where there is a large market for charcoal (Anderson and Fishwick, 1984).

The linkage of environmental degradation and poverty is not a new phenomenon, nor is it unique to the problem of preserving biological diversity. Ever since the Stockholm Conference on Development and the Environment in 1972 it has been widely accepted that poverty is both a cause and an effect of many of the environmental problems to be confronted (Tobey, 1989). Thus, it is virtually impossible to solve global environmental problems without simultaneously addressing the problems of global poverty. In the ter- minology of the World Bank (1992b), development expenditures that generate good economic returns under rational policies, and that also work toward solving excessive pressure on natural resources are “win-win” opportunities.

In the Amazon region most forest destruction can be traced to livestock activities. The degree of deforestation associated with livestock agriculture is considered to be excessive because of poorly conceived government interventions that have provided tax incentives, cheap credit, and title to land to the livestock industry (Binswanger, 1989; Mahar, 1989). In 1979 the combination of poor returns to government supported livestock projects and concern of excessive

deforestation moved the Brazilian government to announce an end to subsidies for new cattle ranches within the rain forest areas of the Amazon. The decision was reversed within a couple of years. In 1989 the Brazilian government again halted subsidies to new livestock operations in Amazonia, but there remains an incentive to convert forest to pasture as a means of securing and retaining land title through “improvement” of the forestland.

In East Asia most tropical forest destruction can be traced to logging which in many of these countries is an important component of the national economy (if one includes processed wood, the exports of the forest sector accounts for some 10% of total export revenues in most countries in Africa and Asia). While an important source of revenue, the intensity of timber activities is considered to be excessive in many cases due to government generated distortions in markets for timber. Repetto and Gillis (1988) point out, for example, that logging royalties are set far below the value of standing timber in Southeast Asia. As a result, the return to and extent of harvesting are excessive.

(b) Environmental externalities

The equilibrium given by point E in Figure 1 is not socially “optimal” because the private costs of converting forestland which make up the supply schedule do not include all external costs that are imposed on society. External costs are not reflected in relative market prices - they are outside the market system. They include the damages to biological diversity, global warming effects of reduced carbon sequestration by trees and other biomass, lost ecosystem func- tions (management of watershed flows of surface and groundwater, protection and enrichment of soils, pol- lination, germination, and dispersal of plants, pest control services, and regulation of surface tempera-


tures and local and regional climate through evapora- tion), and the loss of ethnobiological information. The latter cost refers to the wealth of species and folk knowledge of indigenous people native to the forested area (Myers, 1984).

The social supply curve, KS, in Figure 1 includes all the costs of forest conversion, both private and external. The vertical difference between the private supply curve and social supply curve at any given quantity measures the external costs per extra unit of converted forestland. The level of converted forestland consistent with the social supply schedule in Figure 1 is OS units. Comparing this result with the actual private price and output in equilibrium, we can conclude that the private market for converted forestland leads to an excessive amount of deforestation (by SM=OM-OS).

The negative externalities of tropical deforestation are closely related to the public goods nature of much tropical forestland and the environmental services that the forests provide. The tropical forests and their wildlife are typically public in the sense that they are legally owned by the central government. For political and economic reasons, governments in developing nations often allow subsistence farmers to freely use or claim ownership of forestlands they clear, resulting in overuse of the forest resources and their genetic resources.

Many of the use and nonuse values Af biological diversity also have public goods characteristics. With respect to use values, Sedjo (1992b) observes that international law does not recognize property rights to wild species or wild genetic resource genotypes.J Natural genetic resources have traditionally been viewed as the “common heritage of mankind” that should be available without restriction (Sedjo, 1992b). Therefore, there is little incentive for countries or firms to undertake costly preservation actions since any rents associated with the commercialization of wild species or wild genetic resource genotypes cannot be fully appropriated.5 Similarly, other services of biological diversity, such as recreational values, and the cultural, historic, and symbolic value of species in natural ecosystems are nonappropriable because they do not flow through normal market transactions and cannot be sold to the beneficiaries.

Because of these public goods characteristics there is a “free-rider” problem since individuals can often gain the benefits of biological diversity without paying for them. A thesis of this paper is that the free-rider problem extends beyond the national to the international level. For example, one country’s contribution toward the preservation of biological diversity does not provide that country with exclusive control of the resulting benefits since the genetic resources and many of the values of the preserved diversity can be enjoyed by all. Consequently, from the standpoint of economic efficiency, preservation

of biological diversity will not be provided in an optimal manner without global cooperation. The unilateral introduction of preservation actions across the world’s economies would result in too little total preservation effort.

3. THE COST-BENEFIT CRITERION

In addressing the externalities problem involved in the conversion of tropical forestland, several key questions arise: how much of society’s scarce resources should be devoted toward addressing the externality of lost biological diversity; what public policy approaches toward the preservation of biological diversity and, in particular, tropical habitat conservation, can we draw from; and, who will pay?

In response to the first question, many alternative frameworks or criteria to prioritize the preservation of biological diversity have been suggested. It is important to point out that not all are based on an economics approach. For example, some would argue that there is “value” beyond what humans care about and that society has a responsibility or a moral duty to preserve nature or other sentient beings, irrespective of its own self-interest. Such views have, for example, been expressed by Aldo Leopold (1966) and are increasingly accepted in the environmental ethics literature on “deep ecology” that explores the issue of non-human rights (see Devall and Sessions, 1985). In contrast, the economics approach is strictly anthropocentric.

In addition, some ecologists would not accept the ranking of preservation efforts, arguing that a relative value cannot be placed on the value of an organism’s life because all species are priceless, and that therefore all species are equally important (Ehrenfeld, 1988). Others prioritize the preservation of different life forms but do not suggest how much time and resources should be committed to the preservation effort (IUCN, 1980). In contrast, the economic approach to the issue of how much society should invest in the preservation of biological diversity acknowledges that preservation is costly and that economic tradeoffs will inevitably arise between preservation of life forms and human activities.

Cost-benefit analysis is the most widely used economics approach for deciding preservation issues.h The cost-benefit rule is widely accepted because its objective of economic efficiency is embodied in the very structure of most of the theory of economics developed over the last century, and it is tightly tied to a theoretical model of social choice. The cost-benefit approach involves the identification of as many benefits and costs of a project as possible and their quan- tification in monetary terms wherever this can be achieved. Any course of action is judged acceptable if it confers a net advantage, that is if the present value of benefits outweigh costs.


The cost-benefit criterion provides a useful framework to illustrate the different interests of the developing and industrialized nations, and the economic conditions that must be satisfied to form a workable alliance for global environmental management.’

Consider Figure 2 which illustrates the distribution of benefits and costs among industrialized countries (I) and developing countries (D) associated with the preservation of biological diversity.8 Benefits may be defined as the total damages avoided from the loss of biological diversity. The aggregate marginal benefit curve (MB,) is simply the vertical summation of the benefit curves for the individual countries (MB, and MB,). Costs may be defined as the value of expenditures and social costs incurred to preserve biological diversity. The world marginal cost of preservation curve (M&J is the horizontal summation of the MC curves of the two countries (MC, + MC,) which we assume for the moment to be identical. The economically efficient level of preservation of biological diversity is thus OQO where MB,,, = MC,,,.

Before proceeding, it is important to note that the conceptual cost-benefit framework and diagram are based on some simplifying assumptions. First, the framework is wholly static in character. It assumes that there is a benchmark based on existing levels of biological diversity from which the economically efficient level of biological diversity can be determined. This is a rather unrealistic assumption. Since present condition of ecosystems and biological diversity is a function of both present changes in diversity and the accumulation of past changes in diversity an equitable outcome might hold countries responsible for their total contribution toward the loss of biological diversity. Nor does the conceptual framework explicitly address the intergenerational distribution of benefits. The cost-benefit criterion’s focus on economic efficiency means that any increase in total benefits is desirable irrespective of the distribution of these benefits.

Second, in identifying the net benefits of altema-

Figure 2. Optimal protection with globally shared wsources.

tive preservation strategies, a full accounting of the externalities associated with species extinction, both related to biological diversity and indirectly related to biological diversity is required in principle. This is an imposing task. We do not have good information on the values attributed to the various ecosystem func- tions, ethnobiological information, and carbon sequestration.

Third, because the monetary costs and benefits of many proposals are borne at different times, they must be discounted to a common reference point. The issue of discounting the future in cost-benefit analysis of natural environments is a difficult one, particularly when very long time frames are involved as is the case facing decision makers in the area of preservation of biological diversity (see Pearce and Turner, 1991; Markandya and Pearce, 1988). The costs of preserving biological diversity must be borne now, but the benefits of preserving biological diversity extend generations in the future.

4. TOWARD A COOPERATIVE GLOBAL EFFORT TO PRESERVE BIOLOGICAL

DIVERSITY

The international community should transfer additional funds to developing countries to achieve a level of spending that reflects its desire to protect species and habitats there (World Bank 1992b. p. 168).

Even in its simplest form, the cost-benefit framework provides some powerful insights into the management of global resources. The immediate problem involves the attainment of OQ, of biological diversity (in Figure 2). The use of public policy (consisting of either market or nonmarket mechanisms) to achieve this goal generally requires the existence of an international overseeing body with the authority to tax, subsidize, allocate permits, or regulate for the benefit of society as a whole. Such bodies do not often exist and none of the existing environmental agreements confers these powers on an international institution. This is not surprising since submitting to such an authority involves giving up a degree of national sovereignty. The instruments for enforcing global agreements are also weak. The ability to compel compliance and enforce regulations is generally not present at the international level.

An alternative to an international overseeing body is the establishment of an international alliance or treaty to preserve the global environment. In general, a minimum condition for a country to voluntarily join a treaty to preserve global biological diversity is that it is made no worse off by so doing. Thus, any realistic proposal for a treaty must represent a Pareto improvement for all parties to the agreement (Oates, 1990).


The Pareto condition raises some difficulties con- cerning an integrated world policy to address the preservation of biological diversity. Developing countries contribute to the problem of species extinction but would receive relatively little benefits from preservation of biological diversity since preservation benefits reflect individuals’ valuation of impacts. Both international and domestic cross-section data show that society’s willingness-to-pay for environmental and natural resource amenities increases with income (Deacon and Shapiro, 1975; Grossman and Krueger, 1991; Lucas, Wheeler and Hettige, 1991). Further, the value of genetic resources as an input in production of agricultural and pharmaceutical products is greater in industrialized countries than developing countries since the industrialized countries have a comparative advantage in their scientific and industrial capacity to convert wild species and genetic material for agricultural and medical use. For these reasons, Figure 2 shows that the demand for biological diversity in industrialized countries is large relative to the demand in developing countries.

As a result of asymmetries in economic benefits and costs and other equity considerations, it could be the case that certain countries would be made worse off by an international treaty that assigns a global bioadiversity conservation target. Following Oates (1990), this is shown in Figure 3 where the opportunity costs for the protection of biological diversity for the developing country (the area under the MC, curve) exceed the benefits (the area under the MB, curve). Unless the developing country were compensated sufficiently it would be worse off from joining the environmental treaty.

In this situation it might be expected that countries would determine their own level of protection of biological diversity independently. But, an independent-adjustment outcome will result in subopti- ma1 preservation efforts from a global perspective. Acting unilaterally, country I would equate its marginal costs and benefits (MC, = MB,) and choose a preservation level Q,; country D would choose MC,

= MB,, or level Q,. The sum of the unilateral preservation efforts OQ,+ OQD is less than the optimal OQO. This simply illustrates the essential failure of environmental externalities and common property resources - without the introduction of (global) public policies incidental damage to others is not included in decisions to introduce environmental controls.

The suboptimal outcome is also not cost efficient. An efficient outcome requires the equilization of MC’s across all countries. This is simply the tirst- order condition for a cost-effective solution, ensuring that countries with the lowest preservation costs, preserve the most. Under independent adjustment, however, country I will undertake preservation of biologi-

ow$ 0

Figure 3. Developing country welfare loss at “globally”

optimal level protection.

cal diversity to a point where MC,> MC, so that the costs at the margin of preserving biological diversity will be less in country D than in country I.

The resulting level of preservation of biological diversity could thus be achieved at lower cost by shifting some of the preservation effort from country I to country D. As Oates (1990) observes, such a shifting of enviromental protection activity will not take place under purely independent behavior; but, there exist some opportunities for “gains-from-trade” in environmental services. In effect, country I can “buy” the preservation of biological diversity more cheaply in country D than it can at home. There exists an incentive therefore for country I to approach country D and to offer to help D finance the preservation of its biological diversity.* Both countries would be better off. This is an important finding because it means that the funding of the preservation of forests and biological diversity in developing countries can be justified on the basis of the mutual pursuit of national self-interest, and not from any moral responsibility on the part of the industrialized countries.

5. POLICY APPROACHES

There are several examples of bilateral and multilateral initiatives and treaties on the protection of wild species and their habitat that put the idea of payments for environmental services into practice. On a bilateral basis, debt-for-nature swaps have been popular because they address both the debt problems of developing countries and the need for preserving natural ecosystems. Typically, a private organization agrees to purchase some quantity of a developing country’s debt on the secondary debt markets at a price below full face value. The debt is then turned over to the issu- ing country in exchange for an agreed upon program of environmental protection. Sellers in this debt market are generally creditors with little probability of being fully repaid. The debt is sold at a substantial


discount to minimize losses and to induce others to accept the risk of not being repaid. To date, some 22 private debt-for-nature swaps have been negotiated at a cost of US$23 million (World Bank 1992a).g

The 1972 Convention for the Protection of the World Cultural and Natural Heritage uses access to funding as an incentive for participants to adhere to international conservation standards. With 111 participating countries, it is one of the most widely accepted environmental treaties today. The convention provides financial assistance from the World Heritage Trust to support the establishment of nature reserves in “World Heritage Sites,” which are defined as landscapes and ecosystems with outstand- ing universal value. The World Heritage Trust, managed by the United Nations, has so far placed more emphasis on cultural attributes than on natural characteristics, and is not designed as an instrument for the protection of the world’s biological diversity per se. A similar United Nations effort is called the “Man and Biosphere” program that has established and helped to fund what are termed biosphere reserves. These reserves are designed to foster applied research for sustainable production in tropical forest areas.

The Convention on Biological Diversity signed by 153 countries at the 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro recognizes the international benefits of pro- tecting the world’s genetic resources and the need for international financial and technical support to preserve biological diversity in developing countries. Articles 20 and 21 of the Convention propose the introduction of a system of payments to compensate developing countries for the costs of preservation. Key issues in the implementation of the Convention include policy and criteria for funding biodiversity conservation in developing countries and operational structure of the financial mechanism that will govern the transfer of financial resources.

In principal, the funding mechanism described in the Convention on Biological Diversity could work in a way similar to the “Global Environmental Facility” (GEF). Endnote: The Convention identifies the GEF as the financial mechanism to support the transfer of financial resources from developed to developing countries on an interim basis, for the period between the entry into force of the Convention and the first meeting of the Conference of the Parties, or until the conference of the parties decides which institutional structure will be designated in accordance with the Articles of the Convention. Run jointly by the World Bank, the UN Development Program, and the UN Environment Program, GEF helps developing countries finance the costs of environmental protection (including protection biological diversity) through grants and low-interest loans. This project was established in 1990 with an original funding of about $1 bil-

lion provided by participating industrialized countries.

A smaller, but similar program is the Brazilian Tropical Rainforest Fund established in 199 1 and run by the World Bank and the European Community Commission. The Fund is to provide $250 million to finance the first phase of a pilot program to conserve the rainforest in Brazil.

Aside from the Convention on Biological Diversity none of these treaties and initiatives are currently suited for extensive and effective protection of tropical forest ecosystems. As Lewandrowski (1991) observes, debt-for-nature swaps have limited potential for large-scale forest and biological diversity preservation. Many tropical countries have suspended or are delinquent on their loan service payments. If a country is not paying its debt, then decreasing the face value of the amount due will not produce additional resources (Lewandrowski, 1990). Further, many heavily indebted countries have been successful in restructuring their debt. Restructuring generally involves concessions on the part of creditors who hope to recover most of their investment by making repayment easier. The question, then, is why should the indebted country agree to a swap when the same reduction might be obtained through negotiation (Lewandrowski, 1990).

Nor have earlier biodiversity conservation efforts been designed as payment schemes as outlined earlier to compensate tropical countries for environmental services involving the protection of biological diversity. In most cases earlier efforts to preserve global biological diversity rely on once and for all lump-sum payments for specific projects without accountability on the flow of environmental services that will result, and without an emphasis on cost-effectiveness.

Movement toward a system of financial transfers for the preservation of global biological diversity more consistent with our earlier cost-benefit analysis would require that a number of criteria be satisfied. First, because of the costs involved it is important that whatever policy instrument is chosen it must achieve environmental objectives at the least cost.‘” Payments for the preservation of biological diversity could achieve a close approximation to a least-cost solution if compensation payments to tropical countries were allocated on the basis of competitive proposals describing the estimated opportunity costs of preserving the forests; the quantity and variety of genetic resources contained in the forest habitat; estimated costs of managing the preserve and steps to be taken to ensure adequate protection (the most cost-effective first use of funds may well be to support the protection and management of existing conservation-designated areas that are currently threatened due to inadequate resources for management, staff, and enforcement), and socio-economic considerations relevant to the success of the proposal. The latter consideration


would include, for example, population and economic pressures on land resources, extent of shifting agricultural practice, and government policies.

Second, all nations must be participants in the system of payments to avoid the problem of free-riding. Contributions to the fund should probably be tied to countries’ income and population on the grounds that the ability to capture the global public good benefits of biological diversity is correlated to a country’s per capita income and its population.

Third, the system must be voluntary and explicitly recognize the sovereignty of tropical countries over their forests. Understandably, many countries are uncomfortable about accepting funding to manage their resources because of the implied loss of autono- my. To address this problem, developing countries would make sure that their resource use is consistent with their own development objectives when accepting international support. The tropical countries would formulate, implement, and enforce the conservation plans, thus helping to ensure that the plans are acceptable to the people of the host country and affect- ed area.

Fourth, the system must be flexible in recognition that forests ecosystems and economies are dynamic, and that the opportunity costs of tropical forest preservation change over time as the conditions that determine the value of land in alternative uses change. Increasing pressure on land resources as a result of economic growth, new conditions in markets for timber and agriculture, or population growth, will raise the opportunity costs of keeping out of production segments of tropical forest habitat.

Fifth, compensation should be paid periodically in a “recurrent cost” financing arrangement instead of in once and for all lump-sum transfers. Periodic compensation payments leave more room for flexibility when there is uncertainty in future opportunity costs of tropical forest preservation, better meet the budgetary sit- uations of the governments contributing to it, and provide the opportunity for an annual review. Periodic payments also make sense because they correspond to the periodic benefits which nontropical countries derive from the existence of tropical forests and their biological diversity. This is in contrast to the GEF which is a capital financing facility and provides no mechanism for recurrent cost financing as it is currently structured. Under a system of capital cost financing changes in management costs or in the ability of the host country to support variable operating costs can reduce project effectiveness. Periodic payments can be calculated as an annual payment equal to the annualized income stream (interest) on the capitalized value of the forest land, plus management costs. With a competitive interest rate, such payments should on economic criteria provide forest owners (principally governments of tropical countries) the correct incentive to forego forest conversion.

Sixth, a fully functioning system of international compensation payments for the preservation of biological diversity would require some type of monitoring to provide feedback and ensure compliance. Actual monitoring of forest ecosystems would be needed to ensure that protection promises and management objectives are fulfilled following compensation. It would be expected that this task would be the responsibility of the industrialized countries who have an interest in seeing that the environmental objectives of financial transfers are fulfilled. Tropical countries that do not stick to their preservation con- tract and clear more forest land than they are allowed to, must face a reduction of their compensation payments.

6. IMPLEMENTING ECONOMIC DECISION CRITERIA

The translation of theory into numerical estimates involves many difficulties. Nevertheless, even rough estimates on “how much” the preservation of biological diversity will cost, and “how much” benefits will be gained can provide an important dimension in the decision-making process. Below, the costs and benefits associated with preserving tropical forests for the sake of maintaining biological diversity are identified and issues in the development of numerical estimates are addressed.

(a) The biological diversity benefits of preserving ,forests

The values associated with the preservation of forests for maintaining biological diversity can be identified in three categories: use, option, and existence.

(i) Use value This refers to economic value derived from using

biological diversity in any way. There are at least five types of use value of biological diversity. Endnote: The first three use values are described in more detail in Sedjo (1992a). First, wild species can be a direct source of natural chemicals and compounds used in the production of natural drugs and other natural products (e.g. tax01 - an anti-cancer compound - found in the Pacific yew tree of western North America).”

Second, genetic resources represent a stock of potentially useful information and provide the base for the development of better or new pharmaceutical products and improved crop and livestock varieties. In this sense, preserving biological diversity is like maintaining a huge library of potentially useful information. Third, wild species can be the source of a gene or


set of genes with desired genetic traits that can be used in breeding or in biotechnology. Nor is it likely that genetic engineering will reduce the importance of wild species since this new science is based on existing genetic material and makes such material even more valuable.

Fourth, the uniqueness and beauty of diverse ecological systems has value for recreational activities such as fishing, hunting, camping, and hiking, and for those who enjoy visiting and photographing natural systems. Some rare animals in particular (such as the great white heron, snow leopard, or giant panda) have been recognized as possessing great beauty and other aesthetic qualities. “Ecotourism” has already become an important source of foreign exchange in many tropical countries. For example, Costa Rica earned $138 million in what was mainly nature-based tourism in 1986, bringing in more foreign exchange than timber and timber-product exports (Pearce, 1992).

Finally, there are values of biological diversity that are derived without the user being in direct contact with the natural system (termed “vicarious” consumption). These values come from such experiences as looking at photographs and films of wildlife or read- ing about it. Even without coming in direct contact, all species have actual or potential value for advancing human knowledge and understanding of the natural world (Hair and Pomerantz, 1987). Cultural, symbolic, and historic value of wild species also fall under this category of use value. Certain rare species (e.g., elephant, tiger), because of their anthropomorphic and historic significance, are the recipients of strong per- sonal and symbolic meanings.

(ii) Option and quasi-option value A second category of value associated with biolog-

ical diversity comes from the uncertainty surrounding the demand and supply of ecosystem services. Uncertainty affects the calculation of the benefits of preserving biological diversity through two distinct mechanisms. The first is known as option value and is defined as the amount that people will pay to guaran- tee that they will have the opportunity to purchase either a market or nonmarket good for a specified price at a specified point in the future. It may be thought of as a risk premium to compensate for uncertainty about future preferences, income, or

supply. The second mechanism is known as quasi-option

value, which is the amount people would be willing to pay to delay an activity that, if undertaken, might fore- close making a better-informed decision at a later time. The value of additional information is likely to be of greatest importance when valuing goods subject to possibly irreversible changes, such as endangered species. Early empirical evidence has shown that option and quasi-option value are important compo-

nents of individual’s overall valuation of environmental amenities. For example, one frequently cited study of individuals’ willingness-to-pay for water quality in Colorado estimated option value to be one-half of total recreational value (Greenly, Walsh, and Young, 1981).

(iii) Existence value The third category of value associated with biolog-

ical diversity is referred to as existence value and is the value enjoyed from just knowing that something exists, even though the individual may never experi- ence the good directly. For example, individuals may value the existence of the unique array of diverse species contained in the Cameroon rainforest even though they never expect to visit the rainforest or derive any benefit from its vast biological diversity. Randall (1986) observes that existence values must be derived from some form of altruism since they are independent of current use, expected future use, and the avoidance of risks related to future use. Randall (1986) suggests three forms of altruism. Bequest value refers to the value of knowing that something will be available for future generations to enjoy. Philanthropic altruism refers to the value of knowing that one’s contemporaries may want to use the resource. Intrinsic altruism refers to the concern of the individual for the well-being of nonhuman components of the ecosystem.

(iv) Numerical estimates It is difficult to estimate all categories of values of

the benefits of preserving biological diversity because in most cases direct markets for biological diversity are not observable. The principal use values involve pharmaceutical and agricultural products. By one estimate, half of all prescriptions dispensed in the United States have their origins in wild organisms (Farnsworth and Soejarto, 1985). The commercial value of these medicines and drugs amounts to some $14 billion a year (Myers, 1983). World- wide, and including nonprescription materials plus pharmaceuticals, the estimated commercial value exceeds $40 billion a year (Myers, 1983). In agriculture, the US Agricultural Research Service (1985) estimates that the contributions from plant genetic material lead to increases in productivity that average around 1% annually, with a farm-gate value of well over $1 billion. But calculations of the market value of the prescriptions bought for drugs with their origins in wild organism is not an estimate of the value of the wild species used to manu- facture the drug. Nor do farm sales of foods improved with the introduction of wild species provide a measure of the value of the wild species. What is required is the price that drug manufacturers and farm operators would be willing to pay for the wild species, plus a measure of consumers’ net gains from such


drugs and agricultural products relative to a substitute (Pearce, 1992).

It is more difficult to attach values to goods that are not sold in markets. This includes most recreational values, vicarious consumption, option, and existence values. There are two techniques to measure the benefits of goods that are not sold in markets. First, indirect market methods (including averting behavior and weak complementarity approaches, and hedonic methods) attempt to infer from actual choices, such as choosing where to live, the value people place on environmental goods. While indirect market approaches can be used in some instances to value use values of biological diversity, there are many important cases in which they cannot be used. For example, appropriate averting behavior may not exist. Market imperfections, poor data, or insufficient variation in environmental attributes across sites in a region can limit the use of hedonic market methods. There is, in addition, and entire category of nonuse benefits (option and existence values) which cannot even in principle be measured by indirect market methods.

For this category of benefits direct questioning approaches (known as contingent valuation) must be employed. Direct questioning approaches ask people to make tradeoffs between environmental and other goods in a survey context. Like other survey or experimental methods, the results may be sensitive to the design and conduct of the research. The valuation of biological diversity presents some special conceptual problems. One is defining the commodity to be valued. Biological diversity is an umbrella term for the degree of nature’s variety that can be divided into three hierarchical categories - genetic, species, and ecosystem diversity. Each category describes quite different aspects of living systems that are measured in different ways. Economists, with help from natural scientists, first need to devise common definitions and measures of “diversity” that make ecological sense and that can readily fit into standard economic frameworks (Weitzman, 1992; Solow, Broadus, and Polasky, forthcoming).

Regardless of how biological diversity is defined, several problems must be addressed. First, there is what is termed “sequence aggregation bias.” In general, separately measured components of a benefit cannot be aggregated without misrepresenting their total value. For example, it has been found that the value attached to preserving several species at the same time is less than the sum of the values attached to preserving each species in isolation. This implies that the totality of what is to be preserved cannot be com- puted by simply summing the values attached to individual components (but, at least a ranking if the relative values can probably be made). A related problem involves the availability of substitutes (Whitehead and Blomquist, 1991). Presumably the value placed on the preservation of Amazonian monkeys depends on the

size of the world monkey population. Second, there is the fact that individuals may not

be sufficiently familiar with the commodity to have a well-defined value for it. Responses are likely to be unreliable in this case. For example, do people really know enough about biological diversity and tropical moist forests to place a value on them? Studies have shown that responses are likely to depend critically on the level of knowledge about the commodity being valued and on the information given to respondents in the survey itself (Epp and Griffith, 1990; Samples, Dixon, and Gown, 1986).

Finally, doubts have been cast on the contingent valuation method because elicited values for willingness-to-pay (WTP) for an environmental improvement are often as much as an order of magnitude less than willingness-to-accept (WTA) for the loss of the environmental improvement (Knetsch and Sinden, 1984). In contrast, theory indicates that WTP should approximately equal WTA. Hanemann (1991) has shown that large empirical divergences between WTP and WTA may be due to the perception on the part of the individuals surveyed that there are few substitutes for the public good. If the public good has almost no substitutes (e.g., Yosemite National Park), there is no reason why WTP and WTA could not differ greatly since WTP is bounded by the individual’s income, while WTA could be infinite.

While difficulties will always remain, some contingent valuation estimates of biological diversity are available. To date, most studies of endangered species and wildlife have valued individual species in isolation. For example, Bowker and Stall (1988) estimate that households are, on average, willing to pay $22 per year to preserve the whooping crane. Boyle and Bishop (1987) find that noneagle watchers are willing to spend $11 per year to preserve the bald eagle in the state of Wisconsin. Brookshire, Eubanks, and Randall (1983) estimate existence values of grizzly bears and bighorn sheep in Wyoming to be $24 annually per respondent for grizzly bears and $7 annually per respondent for bighorn sheep. These values are sug- gestive of the large nonuse value individuals place on certain endangered species.12 Aggregating any of these values to the population base of the United States and other industrialized countries yields nonuse values in the billions of dollars.

(b) Costs ofpreserving tropicalforests for biological diversity

If preservation were costless, then all genetic resources contained in the world’s tropical forests could be maintained. In earlier periods of human his- tory preservation was essentially costless. Growing populations, limited natural resource endowments, and alternative uses of forest and other land areas,


however, have increased the costs of protection and preservation over time. Two approaches to protect biological diversity have been termed “in situ” and “ex situ”. In situ approaches seek to preserve natural habitats, whereas the ex situ approach involves the collection of species in zoos, botanical gardens, and the preservation of seeds and other genetic material in environmentally controlled “seed banks” and “germplasm collections.” The ex situ approach is less costly than the in situ approach, but is only feasible for the preservation of a small fraction of the Earth’s species. Furthermore, in its focus on species preservation rather than natural habitats, the en situ approach risks the loss of other known and unknown species that rely on the symbiotic relationships within the whole ecosystem. Below we focus exclusively on the in situ approach for the preservation of biological diversity in tropical forests.

A casual review of existing statistics shows that there already exists a substantial effort toward in situ protection of biological diversity. Tropical and other countries are setting aside to an ever-increasing degree the number and size of areas in which the current forest habitat is to be maintained. There are now some 6,93 1 major conservation areas (nature reserves, national parks, natural monuments, wildlife sanctuar- ies, and protected landscapes) in some 136 countries and territories totalling approximately 651 million hectares (World Resources Institute, 1992). This represents an area three times greater than in 1972, or an increase from 1.6 to 4.8% of total land area (World Bank, 1992b). Some 1,804 of these (representing approximately 230 million hectares) are located in countries with tropical forests.‘j

A very crude estimate of spending on biological diversity can be made using information on budgetary allocations for management of conservation areas and national parks. The World Bank (1992b) estimates that spending on conservation-related activities may amount to 0.01-0.05% of GDP in developing countries and about 0.04% in industrialized countries, implying a total of about $6-$8 billion a year (the United States alone spends $2 billion a year on national parks). These figures show that the nations of the world already have made a nontrivial investment in the maintenance of natural communities and the per- petuation of their biological diversity. But this has been almost entirely a unilateral effort. Currently, international transfers for conservation activities from industrialized countries to developing countries are very small in value: the World Bank (1992b) estimates roughly $200 million a year, or about 3% of world spending on conservation activities (excluding lending from multilateral development banks). A central finding of this paper is that strictly unilateral forest preservation efforts result in suboptimal preservation of biological diversity from a global perspective.

There are also serious concerns about the ability of the current effort to adequately preserve biological diversity. First, the size of the areas set aside for some habitat types are considered to be inadequate to fore- stall the extinction of some species, particularly those that are large, wide-ranging, or especially susceptible to the chance variations in climatic and environmental factors (McNeely et al. 1990). Second, conservation areas in many countries (especially developing countries) are not adequately protected. Encroachment is a severe problem in many areas because preservation laws are often ineffectively enforced and the conservation areas are without professional trained staff, and are not adequately equipped or operating under an explicit management plan.

Forest set-asides require two types of resource commitments. They require giving up alternative forest uses, and they require expenditures to ensure the protection of conservation areas. Some rough information on the costs associated with both types of commitments is available. Simons (1988) has estimated that, based on data taken from Costa Rica, the cost of managing the forest as a preserve is $13 per hectare per year. Similarly, Ruitenbeek (1990) has calculated the cost to save the Korup Park in Cameroon that encompasses 20,000 hectares. The author estimates it would cost of $270,000 to adequately manage this tropical forest reserve.

The opportunity cost of not exploiting the forest is the present value of a perpetual stream of net revenues generated from alternative land uses (e.g., cattle ranching, agriculture) plus stumpage values for mar- keted timber. This measure represents the value of the land use and timber which a country fails to capture in its effort to curtail deforestation. It is difficult to measure the costs of preserving biological diversity through the preservation of tropical forests because as observed earlier, these forests have public goods characteristics. The derived demand for tropical forest land is also often heavily distorted by public policies that favor livestock and timber interests. Thus, there are often not readily observable tropical forest land markets, and when there are, they are frequently dys- functional in that they reflect values distorted by public policies.

Due to these difficulties, estimates of the costs of slowing deforestation in tropical countries are extremely limited. An exception is Darmstadter (1991) who has drawn upon data from various sources to derive some rough estimates of the opportunity costs of not converting forests in Brazil, Indonesia, and the Ivory Coast. These countries were chosen because each is found in one of the major tropical regions (South America, Asia, and Africa). Their calculations based on 1980 data yielded figures of $339, $4,919, and $2,587 per hectare of forest for Brazil, Indonesia, and Ivory Coast, respectively.“’ The higher values for Indonesia and Ivory Coast reflect the


higher rents associated with logging than cattle ranching.

Darmstadter’s (1991) costs estimates of course, do not necessarily reflect the costs of preservation in other countries of the same region. The regions that Brazil, Ivory Coast, and Indonesia represent are not strictly homogenous, and some differences in uses of forest resources, causes of deforestation, and forest policies imply intraregional differences in costs of slowing deforestation. For example, in a report of potential future debt-for-nature swaps, Sung and Troia (1991) observe that a 58,000 hectare parcel of tropical rain forest in Eastern Paraguay would be worth $86-$121 per hectare if sold to developers for commercial logging and agriculture.

An annual payment equal to the annualized income stream (interest) on the capitalized value of the forest land would, with a competitive interest rate, provide forest owners the same incentive to forego forest conversion as would a lump-sum payment equal to the estimated asset value of the tropical forest to be preserved. Using a real dollar interest rate of 8% the annual payment required to increase by 50% the total area of protected areas (from about 230 million hectares to 344 million hectares) would be about $3.1 billion, or approximately 0.04% of industrial market economies’ GNP (using Darmstadter’s estimates for Brazil, Indonesia, and Ivory Coast as proxies for regional costs, and assuming that all of the additional protection took place in the least-cost region, that is, South America).r5 A report of the World Bank (1992b) suggests a somewhat lower cost ($2.5 billion annually over the period of a decade) for increasing the total area of protected areas by 50% as well as making the protection of what are defined as conservation areas effective.

Annual payments would be lower if the interest rate were lower and if the conservation areas allowed for some sustainable harvesting of forest products. Darmstadter (1991) assumes that all land on which deforestation is prevented is managed as preserves with no stream of monetary benefits. There are, however, many potential sustainable uses of tropical forests that would maintain current forest habitat and provide a stream of income. For example, rubber tappers, Brazil nut gatherers, and trappers have exploit- ed parts of the Amazon for decades. Designated areas of forest in which economic activity would be limited to the sustainable harvesting of renewable forest products are known as “extraction reserves.” Potential products include rubber, fruits, nuts, medicinal plants, animal products, wild game, and (per- haps) some quantities of selectively, and sustainably cut timber.

Various studies (Peters, Gentry, and Mendelsohn, 1989; Balick and Mendelsohn, 1992) have found that the harvest of medicinal plants, fruits, and other prod-

ucts in Latin American tropical forests can be potentially very valuable, in many cases more valuable than other present uses. Extraction reserves provide another important benefit: they create local groups with an economic interest in maintaining the forest (Lewan- drowski, 1990). These groups can be quite large. It has been estimated that there are over a half-million rubber tappers in Brazil’s Amazon (Gradwohl and Greenberg, 1988). A large percentage of tropical countries’ population is also composed of indigenous peo- ples who rely on the renewable abundance of the forest.

7. CONCLUDING COMMENTS

The clearing of tropical forests incurs negative externalities for all countries of the world. Among the negative externalities is the loss of global biological diversity. This paper has argued that the position of the industrialized and developing countries toward the loss of biological diversity differs. The perceived benefits of protection of biological diversity is large in industrialized countries, but small in tropical countries. The different positions of the two groups of countries toward the preservation of biological diversity actually provide the basis for some common ground. Industrialized countries can realize “gains-from-trade” by financing preservation of biological diversity in developing countries because it is cheaper to purchase the preservation of biological diversity there than at home. Compensation payments to tropical countries can, therefore, be regarded as a payment for exports of environmental services.

The cost-benefit framework is useful in identifying the potential for gains-for-trade in environmental services. It will always remain, however, extremely difficult to operationalize the cost-benefit criterion to determine the optimal level of preservation of biological diversity. This paper has identified the various categories of benefits, and suggested that the value of preserving biological diversity is probably substantial, but not readily quantifiable. This suggests a cost-effectiveness approach in which we con- centrate on finding the least-cost approach to obtaining some predetermined biological diversity standard.

It is suggested that a cost-effective way to set in motion a system of financial transfers to tropical countries for the preservation of forest habitat is to establish a global biological diversity recurrent cost facility financed by all major nontropical countries. The facility would provide compensation to tropical countries under a competitive proposal process for the flow of environmental services from not converting tropical forests to other uses.

BIOLOGICAL DIVERSITY

NOTES

1943

1. The relative importance of ecological risks in environmental management is illustrated, for example, in an important report of me Science Advisory Board of the United States Environmental Protection Agency (USEPA, 1990).

2. A partial list of causes of extinction includes: habitat alterations to agriculture, grazing, logging, urban and industrial uses; overharvesting or poaching for food, fur and other raw materials, trophies, and live animal trade; introduction of exotic predators, competitors, parasites and diseases; pollution, pesticides and industrial accidents; removal of coe- valved or other species needed for survival, and removal of barriers preventing hybridization with close relatives.

3. The FAO is currently updating the study for 1990 and the preliminary figures suggest that the more recent rate of tropical deforestation has been higher than reported in the 1981 study (FAO, 1988). Tropical deforestation has accel- erated especially in West and Central Africa. Moreover, deforestation in some large Asian countries was underesti- mated in the earlier FAO study.

4. Genotype is defined as the information embodied in the genetic makeup of plant and animal species (Sedjo 1992b).

5. A potential solution to this type of market failure involves the development of contractual agreements worked out among the tropical countries and foreign firms with an interest in acquiring rights to the use of the country’s genetic resources (Simpson and Sedjo, 1992). For example, in recent years several organizations have entered into contracts for the commercialization of genetic resources. The National Cancer Institute (NCI) of the United States has negotiated contracts for access to genetic resources in four countries. Biotics - a British firm that matches sellers of genetic resources with buyers and provides some extraction and processing services - has negotiated contracts with suppliers in three countries. In addition, the government of Costa Rica has negotiated a con- tract with Merck, a private US pharmaceutical firm. All of these contracts provide for royalties to be paid in the event of discovery, and/or up-front payments. Agreements such as this can, on the margin, create potentially important incentives for tropical countries to protect their genetic resources by placing a commercial value on the genetic resources.

6. A second principal economic criterion for deciding preservation issues emphasizes the issue of uncertainty in the estimation of the costs and benefits of preservation. Ciriacy-Wantrup (1968) and Bishop (1978) have suggested a safety-first approach that favors preservation of a species at a safe minimum standard. When the cost of conserving species is low and the possible or potential future benefits are very high, one should proceed on the presumption that conservation of the species is socially optimal until this is proven otherwise. This shifts the burden of proof to the anticonservationists and focuses attention on the costs of avoiding extinction.

7. This Figure and the discussion draw from Oates (1990).

8. Different variations of the theoretical argument for the use of monetary transfers to persuade a party to partici- pate in a program that it would otherwise find unacceptable to resolve a global environmental problem can be found in D’Arge (l974), OECD (1976), and Smets (1974). More recently, in the climate change area, this same logic is being applied to what is termed ‘Ijoint implementation” of programs to reduce greenhouse gas emissions (Merkus 1992).

9. Recently, the debt-for-nature swap idea has been extended to a multilateral framework. The 16 members of the Paris Club have authorized the provision for various types of debt conversions, including debt-for-nature swaps with lower-middle-income countries. Poland, for example, has announced a far-reaching proposal in an attempt to ini- tiate swap possibilities under its new Paris Club agreement to fund a 20-year cleanup of the environment.

10. One market-based approach that can generate least- cost solutions to specified environmental objectives includes a system of marketable permits. Sedjo (1991) has described how a tradeable permit-type system might work to protect the world’s forests. Under the system, participating countries would be allocated protection obligations. Countries with obligations in excess of domestic forest protection commitments would either have to increase preservation domestically, or buy preservation abroad.

11. This was an especially lucky discovery since it is estimated that about 70% of the plant species that possess anticancer properties occur in the tropics (Myers, 1983).

12. Of course, these vahres am only appropriate if one is considering a program to preserve these species in isolation, they should not be added together if two or more of the species are being considered for preservation at the same time, as would be the case in tropical forest preservation.

13. Not all of the 230 million hectares of conservation areas in tropical countries are necessarily comprised of tropical forests.

14. The cost figures provided by Darmstadter (1991) do not account for deforested hectares lost as a result of shifting cultivation or other uses of forests. The percentage of total deforested hectares not included in the cost estimates in Brazil and Indonesia are 35 and 65% respectively. The opportunity costs of keeping these tropical forest lands undisturbed may well be below the estimated average costs.

15. In comparison to the resources that would be needed to address other global environmental concerns such as global warming, preservation of biological diversity is inexpensive. Most economic models of energy use suggest that reducing the flow of greenhouse gases will exact a price of a least 1% of GNP per year for commonly discussed goals such as the indefinite stabilization of present CO, emissions levels (Cline, 1992). One percent of current world GNP is about $150 billion.


REFEE

Anderson, D., and R. Fishwick, “Fuel consumption and deforestation in developing countries,” Staff Working. Paper, No. 704 (Washington, DC: World Bank, 1984).

Amelung, T., “Tropical deforestation as an economic problem,” Mimeo (Kiel, Germany: Kiel Institute of World Economics, 1991).

Balick, M., and R. Mendelsohn, “Assessing the economic value of traditional medicines from tropical rain forests,” Conservarion Biology, Vol. 6, No. 1 (March 1992). pp. 128-130

Binswanger, H., “Brazilian policies that encourage deforestation in the Amazon,” Environment Department Staff Working Paper, No. 16 (Washington, DC: World Bank, 1989).

Bishop, R., “Endangered species and uncertainty: The economics of a safe minimum standard,” American Journal of Agricultural Economics, Vol. 60, No. 1 (1978), pp. 10-18.

Boyle, D., and R. Bishop, “Valuing wildlife in benefit-cost analyses: A case study involving endangered species,” Water Resources Research, Vol. 23, No. 5 (1987) pp. 943-950.

Bowker, J., and J. Stoll, “Use of dichotomous choice nonmarket methods to value the whooping crane resource,” American Journal of Agricultural Economics, Vol. 70, No. 2 (1988). pp. 372-38 1.

Brookshire, D., L. Eubanks, and A. Randall, “Estimating option price and existence values for wildlife resources,” Land Economics, Vol. 59, No. 1 (1983) pp. I-15.

Ciriacy-Wantrup, S., Resource Conservation: Economics and Policies, Third edition (Berkeley, CA: University of California, Division of Agricultural Science, 1968).

Cline, W., “Global warming: The economic stakes,” Policy Analyses in International Economics Series, No. 36 (Washington, DC: Institute for International Economics, 1992).

D’Arge, “Observations on the economics of transnational environmental externalities,” in Problems in Transfrontier Pollution (Paris: Organization for Economic Cooperation and Development, 1974).

Darmstadter, J., “The economic cost of CO2 mitigation: A review of estimates for selected world regions,” Discussion Paper, ENR91-06 (Washington, DC: Resources for the Future, 1991).

Deacon, R., and P. Shapiro, “Private preference for collec- tive goods revealed through voting on referenda,” American Economic Review, Vol. 65 (I 975), pp. 943-955.

Devall, B., and G. Sessions, Deep Ecology: Living as if Nature Mattered (Salt Lake City, Utah: Gibbs M. Smith, 1985).

Ehrenfeld, D., “Why put a value on biodiversity,” in E. Wilson (Ed.), Biodiversity (Washington, DC: National Academy Press, 1988), pp. 2 12-2 16.

Epp, D., and A. Griffith, “Knowledge effects on responses in contingent valuation,” Staff Paper 191 (State College: Pennsylvania State University, College of Agriculture, 1990).

Farnsworth, N., and D. Soejarto, “Potential consequences of plant extinction in the US on the current and future availability of prescription drugs,” Economic Botany, Vol. 39 (1985), pp. 231-240.

Food and Agriculture Organization, “An interim report on

:ENCES

the state of forest resources in the developing countries,” Mimeo (Rome: Food and Agriculture Organization and the United Nations Environment Program, 1988).

Food and Agriculture Organization, Tropical Forest Resources Assessment Project (GEMS): Tropical Africa, Tropical Asia. Tropical America, 4 Volumes (Rome: Food and Agriculture Organization and the United Nations Environment Program, 1981).

Gradwohl, J., and R. Greenberg, Saving the Tropical Forests (Washington, DC: Island Press, 1988).

Greenley, D., R. Walsh, and R. Young, “Option value: Empirical evidence from a case study of recreation and water quality,” Quarterly Journal of Economics, Vol. 96 (1981), pp. 657-672.

Grossman, G., and A. Krueger, “Environmental impacts of a North American Free Trade Agreement,” Discussion Paper, No. 158 (Princeton, NJ: Woodrow Wilson School, Princeton University, 1991).

Hair, J., and G. Pomerantz, “The educational value of wildlife,” in D. Decker and G. Goff (Eds.), Valuing Wildlife: Economic and Social Perspectives (Boulder, CO: Westview Press, 1987).

Hanemann, M., “Willingness to pay and willingness to accept: How much can they differ,” American Economic Review, Vol. 81, No. 3 (1991) pp. 635647.

IUCN, World Conservation Strategy (Gland, Switzerland: International Union for the Conservation of Nature and Natural Resources, 1980).

Knetsch, J., and J. Sinden, “Willingness to pay and compensation demanded: Experimental evidence of an unexpect- ed disparity in measures of value,” Quarrerly Journul of Economics, Vol. 99, No. 3 (1984) pp. 507-521.

Leopold, A., A Sand County Almanac: With Other Essuys from Round River (New York: Oxford University Press, 1966).

Lewandrowski, J., “Tropical deforestation and the design of global preservation policies,” unpublished manuscript (Washington, DC: United States Department of Agriculture, Economic Research Service, 1990).

Lucas, R., D. Wheeler, and H. Hettige, “Economic devaelop- ment, environmental regulation and the international migration of toxic industrial pollution: 1960-1988,” Paper presented at the Symposium on International Trade and the Environment (Washington, DC: World Bank, 1991).

Mahar, D., Government Policies and Deforestation in Brazil’s Amazon Region (Washington, DC: World Bank, 1989).

Markandya, A., and D. Pearce, “Environmental considerations and the choice of discount rate in developing countries,” Environment Department, Working Paper No. WP- 3 (Washington, DC: World Bank, 1988).

McNeely, J., K. Miller, W. Reid, R. Mittermeier, T. Werner, Conserving the World’s Biological Diversity (Gland, Switzerland: International Union for the Conservation of Nature, 1990).

Merkus, H., ‘The framework convention on climate change: Some thoughts on joint implementation,” Climate Change Division, Paper 11 (The Netherlands: Ministry of Housing, Physical Planning and Environment, November 1992).

Mittermeier, R., “Primate diversity and the tropical forest,” in E. Wilson (Ed.), Biodiversity (Washington, DC: National Academy Press, 1988), pp. 145-154.


Myers, N., “Tropical forests and their species: Going, going . ., ” in E. Wilson (Ed.), Biodiversity (Washington, DC:

National Academy Press, 1988). pp. 28-35. Myers, N., The Primary Source (New York Norton, 1984). Myers, N., A Wealth of Wild Species (Boulder, CO:

Westview Press, 1983). Oates, W., “Reflections on an ‘optimal treaty’ for the global

commons involving industrialized and developing nations,” Paper presented at the New Haven Workshop on Economics and Global Change (New Haven: Yale University, May 1990).

OECD, Economics of Transfrontier Pollution (Paris: Organization for Economic Cooperation and Development, 1976).

Office of Technology Assessment, Technologies to Manage Biological Diversity (Washington, DC: US Congress, Office of Technology Assessment, 1987).

Pearce, D., “An economic approach to saving the tropical forests,” in D. Helm (Ed.), Economic Policy Towards the Environment (Oxford: Blackwell Publishers, 1992), pp. 239-262.

Pearce, D., and R. Turner, Economics of Natural Resource and the Environment (Baltimore, MD: The Johns Hopkins University Press, 1991).

Peters, C., A. Gentry, and R. Mendelsohn, “Valuation of an Amazonian rainforest,” Nature, Vol. 339 (June 29, 1989). pp. 655-656.

Randall, A., “Human preferences, economics, and the preservation of species,” in B. Norton (Ed.), The Preservation of Species: The Value of Biological Diversity (Princeton: Princeton University Press, 19086), pp. 79-109.

Repetto, R., and M. Gillis, Public Policies and the Misuse of Forest Resources (Cambridge: Cambridge University Press, 1988).

Ruitenbeek, H., “The rain forest supply price: A step towards estimating a cost curve for rain forest conservation,” Development Economic Research Program, Discussion Paper, Number 29 (London: London School of Economics, September 1990).

Samples, K., J. Dixon, and M. Gowen, “Information disclo- sure and endangered species valuation,” Lund Economics, Vol. 62, No. 3 (1986), pp. 306-312.

Sedjo, R., “Preserving biodiversity as a resource,” Resources (Winter 1992a), pp, 26-29.

Sedjo, R., “Property rights, genetic resources, and biotechno- logical change,” Journal of Law and Economics, Vol. 35,

No. 1 (April 1992b). Sedjo, R., “Toward a worldwide system of tradeable forest

protection and management obligations,” Discussion Paper, ENR 91-16 (Washington, DC: Resources for the Future, 1991).

Simons, P., “Costa Rica’s forests are reborn,” New Scientist, Vol. 22 (1988). pp. 43-47.

Simpson, D., and R. Sedjo, “Contracts for transferring rights to Indigenous genetic resources,” Resources, No. 109 (Washington, DC: Resources for the Future, Fall 1992).

Smets, H., “Alternative economic policies on unidirectional transfrontier pollution,” in Problems in Transfrontier Pollution (Paris: Organization for Economic Cooperation and Development, 1974).

Solow, A., J. Broadus, and S. Polasky, “On the measure- ment of biological diversity,” Journal of Environmental Economics and Management , Vol. 24 (1993). pp. 60-68.

Sung, W., and R. Troia, “Developments in debt conversion programs and conversion activities,” Technical Paper, Number 170 (Washington, DC: World Bank, 1991).

Tobey, J., ‘Economic development and environmental management in the Third World,” Habitat International, Vol. 13, No. 4 (1989), pp. 125-135.

US Agricultural Research Service, “Introduction, classifica- tion, maintenance, evaluation, and documentation of plant germplasm” (Washington, DC: United States Department of Agriculture, 1985).

US Environmental Protection Agency, “Reducing risk: Setting priorities and strategies for environmental protection” (Washington, DC: Science Advisory Board, United States Environmental Protection Agency, 1990).

Weitzman, M., “On diversity,” Quarterly Journal of Economics, Vol. 107, No. 2 (May 1992). pp. 363405.

Whitehead, J., and G. Blomquist, “Measuring contingent values for wetlands: Effects of information about related environmental goods,” Water Resources Research, Volume 27, No. IO (1991), pp. 2523-2531.

Wilson, E. (Ed.), Biodiversity (Washington, DC: National Academy Press, 1988).

World Bank, World Debt Tables (Washington, DC: World Bank, 1992a).

World Bank, World Development Report 1992 (New York Oxford University Press, 1992b).

World Resources Institute, World Resources 1992-93 (New York: Oxford University Press, 1992).

toward a global effort to protect the earth's biological diversity

Documents