The economic value of biodiversity: a scoping paper

Professor Jeff Bennett
Asia Pacific School of Economics and Government
The Australian National University, October 2003

1. Economics and biodiversity

From the perspective of an economist, biological diversity or ‘biodiversity’ is of interest for two fundamental reasons. First, biodiversity is valuable to society. That is, the greater the biodiversity we have, the better off we are and if we lose some biodiversity, we consider ourselves to be worse off. Second, choices made by society have made and are continuing to have effects on biodiversity. That is, some of the resource use decisions made by society – albeit inadvertently – have left us with less biodiversity. Clearing land for agriculture, harvesting timber from forests, draining wetlands for housing estates for example, have caused depletions in biodiversity.

Putting these two reasons together lead the economist to conclude that biodiversity is a scarce and valuable resource. And for an economist, that means their discipline has something to contribute to the biodiversity debate, simply because the focus of economics is on the analysis of the ways societies make choices about their scarce and valuable resources.

The primary goal of this paper is therefore to provide an understanding of what economics has to say about biodiversity. Because the overriding goal of economics is to deliver choice solutions that make society better off, a strong emphasis will be given to the value of biodiversity because it is the creation of value that makes society better off. Specifically, three questions will be addressed:

  1. Why is biodiversity valuable?
  2. How can the value of biodiversity be estimated? and,
  3. How can the value of biodiversity be delivered to society?

The goal is not to advocate or promote any particular type of analysis. Rather, it is intended that the paper will give policy makers a background on what economics has to offer, with both the strengths and weaknesses of the economics approach being highlighted. This, it is hoped, will be a base for policy makers to determine what role (if indeed any) economic analysis should play in the consideration of resource use choices that have biodiversity impacts. If a role is deemed appropriate, the secondary goal is to form a foundation for decisions regarding elements of the application and further development of economic analysis of biodiversity.

The paper begins with an attempt to define biodiversity. ‘Attempt’ is used advisedly here because it is immediately apparent that biodiversity is a complex concept that generates definitional conundrums. The importance to society and the policy significance of biodiversity are addressed to answer the question: ‘Why is biodiversity valuable?’ What economists have done to estimate the value of biodiversity is outlined. While the lists of valuation techniques developed and applications performed internationally are extensive, it is also apparent that the discipline does not find itself standing on ‘safe’ ground in this area. Some of the specific issues that have caused concerns both within and outside the economics profession are overviewed, especially in the light of observations made regarding the relevance of applications to policy making. Briefly, the third question of how the value of biodiversity can be delivered to society is tackled before the paper concludes with some suggestions for the way forward.