The economic value of biodiversity: a scoping paper

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

4. Significance in policy

Some of the values impacted by biodiversity outlined in the previous section have the public good characteristics of ‘non-excludability’ and ‘jointness’. For instance, the enjoyment people experience from knowing that there is in existence a range of species is ‘non-excludable’ because it is impossible to stop anyone from experiencing it. And the benefits of water purification provided by a biodiverse wetland system are ‘joint’ in that they are available at no extra cost to an additional beneficiary once it is initially supplied.

A consequence of these characteristics is that the type of market forces we rely upon to supply society with wheat, shoes and houses will be unlikely to yield biodiversity benefits at the socially most desirable level. This is the classical ‘market failure’ argument. Without the incentives for private sector provision that are generated when goods are excludable and joint in supply, there will be insufficient biodiversity supplied by market forces alone.

The implication of market failure is that there is a potential role for government in filling the gap left by market forces. However, governments should only step in if it can be demonstrated that the benefits of intervention exceed the costs. In other words, the actions of government must be justified with reference to an improvement in human wellbeing. This is because a net benefit from government action cannot be presumed simply because of market failure. There is always the prospect of ‘government failure’ arising because of inadequacies in the bureaucratic/political processes involved in designing and implementing such action.

What this means is that without government intervention to protect biodiversity, insufficient protection can be expected. However, with government intervention, there is a danger of it being deliberately misdirected due to the actions of vested interest groups seeking to direct government action to their advantage. Even in the absence of this type of so-called ‘rent-seeking’ behaviour, the task faced by government in determining if proposed interventions are to the benefit of its constituents is somewhat daunting. However, economics has developed analytical tools to help in the process.