Biodiversity Conservation: Information Problems and Regulatory Choices

1
Biodiversity Conservation Information Problems
and Regulatory Choices

• Timo Goeschl and Tun Lin
• University of Cambridge

2
Introduction

• Informational constraints are one of greatest
  challenges to biodiversity policy making.
• Biodiversity Value Information
• Conservation Cost Information
• The nature, type, and extent of informational
  insufficiencies have profound impacts on choices
  of regulatory measures

3
The Benefits of Conservation

• Cornerstone of biodiversity policies
• Research objective
• To ascertain the economic value of
  biodiversity
• The initial quest for the TEV
• Ecological complexities of biodiversity can only
  be partially reduced in economics
• Complication Valuation of a non-market good.

4
The Total Economic Value
5
State of the valuation debate

• Debate has become
• more sophisticated in terms of valuation
  categories considered
• more professional in terms of methodologies
• more informed in terms of how to approach the
  valuation of individual components of the TEV
• However, the debate does not appear to
• converge either in terms of the total or
  marginal value of biodiversity,
• come closer to a meaningful aggregation of value
  categories, and
• Have become less acrimonious.

6
The Costs of Conservation

• Question How can biodiversity conservation be
  carried out most cost-effectively?
• Cost components
• Opportunity cost of land
• Foregone benefits of alternative uses
• Relationship between conservation and other uses
• Management costs
• Direct costs of conservation activity
• Informational costs
• Revelation costs
• Research
• Costs will differ depending on instrument used.

7
Marginal Benefits and Costs
MC
MB,MC
p
MB
Biodiversity
B

• For optimal choice, marginal costs of
  conservation are as important as marginal benefits

8
Marginal Benefits and Costs
Benefits in EURO
MC
MC
MB
Biodiversity
B
B
Information insufficiencies ? not knowing
sufficiently well MB and MC ? Suboptimal
Regulation
9
This study reviews two closely-related aspects of
biodiversity conservation

• Informational Insufficiencies
• (of MB and MC curves)
• Biological Uncertainty
• Natural Variability
• Individual Information
• Monitoring Problem

• Policy Instruments
• Land Takings /Access Restriction
• Environmental Taxes/ Changes
• Contract

10
Information Insufficiencies (1)

• Biological Uncertainty
• Very limited knowledge for biology process (e.g.
  threshold values) results in the uncertain forms
  of relationships in the system
• Difficult to evaluate the value of biodiversity
  enhancing activities
• Modeling learning process (passive and active
  learning, Dosi et. al. 1997) and information
  discovery process

11
Information Insufficiencies (2)

• Natural Variability
• Stochastic shocks from uncontrollable factors
  such as climate change and invasion of some alien
  species to local ecosystem
• Modeling stochastic influence (e.g. Segerson,
  1988).

12
Information Insufficiencies (3)

• Hidden Individual Information
• Landowners to be regulated are diverse and
  heterogenetic
• Models starts with landowners either having
  better information or being in a better position
  to collect the information

13
Information Insufficiencies (4)

• Monitoring Problems
• Regulators Inability to Monitor Input (Effort
  Level) and Output (Impact)
• A number of contributing factors equipment and
  personnel limitations, or inability to enter the
  polluters premises etc.
• Monitoring problem sharpens when the number of
  landowners increases

14
Policy responses

• Land acquisition
• Without compensation
• With compensation
• Subcase land use restrictions
• Environmental raxes / removal of subsidies
• Contracts

15
Policy choice
16
Land acquisition

• Implies that the government becomes the
  conservation manager.
• Information on lands conservation value is
  essential for acquisition decision and project
  comparison.
• General Wisdom
• Expensive to government
• Governments under-perform in production
  activities
• Implies higher than necessary opportunity costs
• Implies higher than necessary management costs
• Question of compensation
• Land Use Restriction

17
No Compensation

• The absence of compensation reduces up-front
  conservation costs to society more conservation
• Problems
• Excess conservation beyond social optimum.
• Problematic incentives for landowners when
  presence of biodiversity impacts negatively on
  land values
• No cooperation from landowners in prospecting for
  biodiversity
• Timing of development of land will be pushed
  forward to preempt expropriation.
• Lack of compensation is likely to undermine
  conservation efforts.

18
Compensation

• If compensation paid, conservation more expensive
  up-front, but may result in more biodiversity
  available.
• Benefits
• Public needs to confront opportunity costs
  explicitly.
• Prevents looting of public goods by landowners
• Problems
• Very seldom based on land conservation values
  because of insufficient information
• If based on opportunity cost, incentive for
  landowner to develop earlier in order to raise
  size of payment (Blume, Rubinfeld, Shapiro
  doctrine).

19
Policy shift

• General shift in focus from public to private
  land as locus of biodiversity conservation
• Possible reasons
• Limitations of conservation opportunities on
  public land.
• Conservation opportunities on private land (e.g.
  ESA in the USA).
• Perceived failures of acquisition and regulation
  policies.
• General shift in preferences regarding the
  optimal size of government.

20
Contracting

• Landowner retains management.
• Generally preferred where conservation is
  competing with other uses of the land.
• Prime example Agriculture
• Government becomes principal in a regulatory
  situation where a contract with an agent (the
  landowner) is specified.

21
Contracting

• Compared to land takings, contract is provide
  public goods through private producers.
• Compared to taxes, many contracts circumvent the
  problem of evaluating the environmental goods
  biodiversity by basing the contract payment on
  opportunity costs
• However, aforementioned informational constraints
  still exist, especially hidden information and
  monitoring problem

22
Problems in contracting

• Asymmetric information
• Landowner often better informed about opportunity
  cost of conservation than government gt will try
  to extract better contractual terms.
• Landowner often better informed about social
  value of land.
• Different ability of principal and agent to
  collect information
• Legal constraints
• Cost constraints.

23
Problems in contracting

• Informational costs probably of significant
  size.
• Policy responses
• In general, more carrots than sticks optimal.
• Increases up-front cost of conservation
• Need for more sophisticated carrots
• Contracts with fixed and variable reward
  component
• Compensation for information revelation
• Insurance tools
• Tradable development rights
• Appearance of more exotic instruments

24
Conclusions

• Information discovery as an integrated part of
  conservation policy.
• Better information improves regulation efficiency
• Instrument choice should explicitly take into
  account the information structure.
• An integrated framework that explicitly considers
  efficiency trade-offs of different regulatory
  measures under various informational structures
  is essential.