The Price of Biodiversity

Poor nations lack the economic incentive to preserve biological resources; rich nations will have to pick up the bill.

Dismayed that their pleas to save the world’s biological diversity seem to be falling on deaf ears, conservation advocates have turned to economic arguments to convince people in the poor nations that are home to much of the world’s biological riches that they can profit through preservation efforts. In the process, they are demonstrating the wisdom of the old adage that a little knowledge can be a dangerous thing. Too often, the conservationists are misunderstanding and misapplying economic principles. The unfortunate result may be the adoption of ineffective policies, injustices in allocating the costs of conservation, and even counterproductive measures that hurt the cause in the long run.

When it became clear that the private sector in developing countries was not providing sufficient funds for habitat preservation and that international donors were not making up the shortfall, organizations such as Conservation International, the International Union for the Conservation of Nature, and the World Wildlife Fund began to develop strategies intended to demonstrate how market forces could provide an incentive to preserve biodiversity. Three mechanisms are often employed. Bioprospecting is the search for compounds in animals and plants that might lead to new or improved drugs and commercial products. Nontimber forest products are resources, such as jungle rubber in Indonesia and Brazil nuts in Brazil, that have commercial value and can be exploited without destroying the forest. Ecotourism involves the preservation of natural areas to attract travelers.

Although some of these initiatives are undoubtedly worthwhile in certain locales, and all of them can be proposed in a way that makes it appear that they will serve the dual purpose of alleviating poverty and sustaining natural resources, a number of private and public donors have spent millions of dollars supporting dubious projects. They have often been funded by organizations such as the World Bank, Inter-American Development Bank, Global Environmental Facility, the European Community, and the U.S. Agency for International Development, as well as by the development agencies of a number of other nations and several private foundations. Others are spending money to help local governments, such as Costa Rica, market opportunities for bioprospecting, nontimber forest products, and ecotourism. In many instances, the money might be better spent in efforts to pay for the conservation of biodiversity more directly.

When these programs violate basic economic principles, they are destined to fail and to waste scarce conservation money. Failures will also weaken the credibility of conservationists, who would do better to take a different approach to promoting the preservation of biodiversity.

What local people value

The most fundamental economic principle being violated is “You get what you pay for.” Certain proposals aim to preserve habitat in poor regions of the tropics without compensating the local people for the sacrifices inherent in such protection. For example, poor people in developing countries are felling their rain forests in order to generate much-needed income. A proposal to stop this activity without substituting an equivalent source of revenue simply won’t fly. Another troubling aspect of strategies intended to convince local people to change their behavior is that they are often based on the patronizing notion that local people simply haven’t figured out what is in their own best interests. More often, the advocates of purportedly “economic” approaches haven’t understood some basic notions.

A weakness common to many of the arguments is a poor understanding of the distinction between total and marginal values. The total value of biodiversity is infinite. We would give up all that we have to preserve the planet’s life-support system. But the marginal value of any specific region is different; and it is marginal value-the value of having a little more of something-that determines economic behavior. The simple fact is that there are many areas in the world rich in genetically diverse creatures that might provide a source of new pharmaceuticals, for example. There are any number of useful materials that might be collected from forests. There are many potentially attractive destinations for ecologically inclined tourists. Consequently, the value of any single site at the margin (the value given the existence of the many other substitute sites) is low. This proposition has an important corollary: If an area’s biodiversity is not scarce in the economic sense, the economic incentives it provides for its own preservation are modest.

The above assertions are subject to a crucial qualification: Biodiversity is becoming a scarce and valuable asset to many of the world’s wealthier people. This is largely because we can afford to be concerned about such things. It is up to us, then, to put up the money to make conservation attractive to the poor. Biodiversity conservation will spread more by inducing those who value biodiversity to contribute to its protection than by preaching the value of biodiversity to those whose livelihood depends directly on exploiting these natural resources.


There are few hard numbers on the size of the bioprospecting industry today, but its growth to date has disappointed many of its advocates. Some conservationists and tropical governments project the potential revenues as enormous, perhaps reaching hundreds of billions of dollars.

Across eons of evolution, nature has invented marvelous chemical compounds. Because many augment the growth, toxicity, reproduction, or defenses of their host plants and animals, they have potential applications in agriculture, industry, and especially medicine. Humanity would be far more hungry, diseased, and impoverished without them.

However, we again must make the distinction between total and marginal values in judging the incentives bioprospecting might provide for habitat preservation. The decision of whether to clear another hectare of rainforest is not based on the total contribution of living organisms to our well-being. It is based on the prospective consideration of the incremental contributions that can be expected from that particular area.

Suppose the organisms on one particular hectare were very likely to contain a lead to the development of valuable new products. If so, there would be correspondingly less incentive to maintain other hectares. If such “hits” are relatively likely, maintaining relatively small areas will suffice to sustain new product development. Conversely, suppose there is a small likelihood that a new product will be identified on any particular hectare. If so, it is unlikely that two or more species will provide the same useful chemical entity. But if redundant discoveries are unlikely in a search over very large areas, the chance of finding any valuable product is also small. Thus, as the area over which the search for new products increases, the value of any particular area becomes small.

Of course, some regions are known to have unique or uniquely rich biological diversity. More than half of the world’s terrestrial species can be found on the 6 percent of Earth’s surface covered by tropical rainforests. The nations of Central America, located where continents meet, are particularly rich in species, and island nations such as Madagascar have unique biota. Countries such as Costa Rica or Australia are more attractive to researchers, because they offer safer working environments than do their tropical neighbors. But the question is what earnings can be realized even in the favored regions. Simply offering an opportunity to conduct research on untested and often as yet unnamed species is a risky proposition. The celebrated agreement between U.S. pharmaceutical company Merck and Costa Rica’s Instituto Nacional de Biodiversidad (INBio) has resulted in millions of dollars of payments from the former to the latter. Close inspection, however, reveals that the majority of the payments have gone not for access to biodiversity per se, but to compensate INBio for the cost of processing biological samples. Such payments provide little incentive for habitat conservation.

More problematic is the evidence that the returns that even the most biologically diverse nations can expect are modest; the earnings of INBio, one of the most productive arrangements, are small on a per-hectare basis. This is not to say that countries that can provide potentially interesting samples shouldn’t earn what they can, generating some incentives for conservation even if they will not be large. But a country’s false hopes may prompt it to refuse good offers in the vain hope of receiving better ones. Indeed, business has shown a general lack of interest in bioprospecting, as was documented in an April 9, 1998 cover story in the British journal Nature.

In promoting ecotourism and bioprospecting, conservationists too often misunderstand and misapply economic principles.

Unrealistic expectations and the suspicions to which they give rise are generating growing concern in developing countries over biopiracy, the exploitation of indigenous resources by outsiders. Although perhaps understandable given a history of colonial excesses, the vigilance now being shown may be excessive. Negotiations between Colombian officials and pharmaceutical researchers seeking access to Colombia’s genetic resources recently broke down after considerable time and expense. Differing expectations prevented a deal from being struck, and although Colombia should have tried to get the best deal it could, it cannot expect to charge more than the market will bear.

Another danger associated with unrealistic expectations is that countries will choose to go it alone. Brazil is seriously considering relying solely on its domestic R&D capabilities. This will retard the pace at which Brazilian biodiversity can be put to work for the country and raise the likelihood that pharmaceutical companies will conduct their research elsewhere. It is no accident that politically stable and predictable Costa Rica has taken the lead in international bioprospecting agreements.

The logic behind going it alone is based on the dubious notion that the country will add value that will enhance its earnings. But value added frequently measures costs incurred in capital investments. What may appear to developing countries to be tremendous profits from pharmaceutical R&D are often only the compensating return on tremendous investments in R&D capacity. Yet if it were profitable to make such investments in other countries, why wouldn’t the major pharmaceutical companies have done so? The industry has already shifted production facilities around the world to take advantage of cheap labor or favorable tax treatments. Most developing countries have far more productive things to do with their limited investment funds than devote them to highly speculative enterprises whose employees’ special skills will be of limited value should the enterprise not pan out. Countries are generally better off simply negotiating fees for access to their resources.

Nontimber forest products

The argument that harvesting nontimber forest products is a productive way to preserve biodiversity has a major drawback: Harvesting can significantly alter the environment. Moreover, a successful effort to use an area of natural forest sustainably for these products often contains the seeds of its own destruction. Virtually anything that can be profitably harvested from a diverse natural forest can be even more profitably cultivated in that same area by eradicating competing species.

A good example is the Tagua Initiative launched by Conservation International. It is a program to collect and market vegetable ivory, a product derived from the Tagua nut and used for buttons, jewelry, and other products. Douglas Southgate, an economist at Ohio State University who has written extensively on the collection of nontimber forest products, reports that “The typical tagual [area from which tagua is collected] bears little resemblance to an undisturbed primary forest. Instead, it represents a transition to agricultural domestication….The users of these stands, needless to say, weed out other species that have no household or commercial value.”

Even if an organization such as Conservation International tries to ensure that the tagua it markets has been collected in a way that sustains a diverse ecosystem, the success of the product will generate competition from less scrupulous providers. To suppose that a significant number of consumers can and will differentiate between otherwise identical products on the basis of the conservation practices of their providers is unrealistic. The pressure to get the greatest productivity out of any region is great, because the world markets can be large. At least 150 nontimber forest products are recognized as significant contributors to international trade. They include honey, rattan, cork, forest nuts, mushrooms, essential oils, and plant or animal parts for pharmaceutical products. Their total value is estimated at $11 billion a year.

The economic argument for nontimber forest products arose from what has proved to be very controversial research. A recent survey of 162 individuals at multilateral funding organizations, nongovernment organizations, universities, and other groups involved in forest conservation policy found that among the three most influential publications in the field was a two-page 1989 Nature article. In “Valuation of an Amazonian Rainforest,” Alwyn Gentry, Charles Peters, and Robert Mendelsohn argued that a tract of rainforest could be more valuable if sustainably harvested than if logged and converted to pasture.

Their finding sparked great enthusiasm among conservation advocates. The enthusiasm has not been entirely tempered by disclaimers issued in both the article and later critiques. Foremost among the disclaimers is that the extent of markets would probably limit the efficacy of efforts to save endangered habitats by collecting their products sustainably and marketing them. Local markets for these products are typically limited, and there is little room in international markets to absorb a flood of nontimber forest products large enough to finance conservation on a broad scale.

Moreover, subsequent research has largely contradicted the optimistic conclusions of the 1989 paper. A survey of 24 later studies of nontimber forest products collection in areas around the world identified none that estimated a value per hectare that was as much as half that found in the article.


As a final example of a dubious economic argument, consider ecotourism. A considerable amount of effort has gone into defining exactly what is and isn’t ecotourism. Advocates are understandably reluctant to confer the designation on activities that exploit natural beauty but also degrade it. Yet that is precisely the concern. Wealthy travelers are more likely to visit a site if they can sleep in a comfortable hotel, travel via motorized transportation, and be assured that carnivorous or infectious pests have been eradicated. The most appropriate conservation policy toward ecotourism is more likely to be regulation than promotion.

The economic point is that the financial benefits of ecotourism are largely to be reaped from attendant expenditures. It is difficult to charge much admission for entrance into extensive natural areas. Most monetary returns come from expenditures on travel, accommodations, and associated products. Gross expenditures on these items are substantial, estimated to be as high as $166 billion per year. The question is how much this spending actually provides an incentive for conservation. Of the $2,874 that one study found is devoted to the average trip to the Perinet Forest Reserve in Madagascar’s Mantadia National Park, how much really finances conservation?

The most appropriate conservation policy toward ecotourism is more likely to be regulation than promotion.

The question about the marginal value of ecotourism again centers around scarcity. There are so many distinctive destinations one might choose for viewing flora, fauna, and topography that few are unique in any economically meaningful sense. Rainforests and coral reefs, for example, can be seen in numerous places. In short, ecotourism locations compete with a multitude of vacation destinations. Hence, few regions can expect to earn much money over and above the costs of operation.

It is also important to think about value added in this context. Locating a hotel in the middle of paradise may be a Faustian bargain, but the hotel, once established, would at least provide earnings that could be applied to conservation. Still, this is not the relevant consideration. Although a large investment might result-indeed ought to result-in an income flow into the future, the relevant consideration is whether the flow justifies the investment. Competition between potential tourist destinations can be expected to restrict investment returns. A better strategy for encouraging conservation would be to provide direct incentives, such as buying land for nature preserves and parks.

Making the best of opportunities

Although economic instruments for promoting conservation are of limited use, economically inspired activity will nonetheless continue to take place in areas rich in biodiversity. The best we can do with an economic approach is to try to ensure that this activity increases the ability of local people to reap some of the value. They are the ones most likely to then continue to try to preserve the local landscape.

Two policy actions can help in reducing the need for supplemental funding from wealthier nations, though conservation at existing levels would still require substantial payments from the rich to the poor. First, we should eliminate counterproductive incentives. Governments in some developing countries have granted favorable tax treatment, loans at below-market rates, or other perverse subsidies to particularly favored or troublesome constituencies. Perverse incentives have accelerated the conversion of habitat that would have occurred without any government interference at all. For example, Hans Binswanger at the World Bank has identified such policies as a major contributor to the deforestation of the Brazilian Amazon.

Second, we need to make sure that whatever benefits can be generated by local biodiversity for local people are in fact received by them. Suppose, for example, that a rainforest was more valuable as a source of sustainably harvested products than it was if converted to a pasture. The economically efficient outcome-the preservation of the rainforest-would be achieved only if whoever made the decision to preserve it also stood to benefit from that choice. Why should someone maintain a standing forest today if she fears that the government, a corporation, or immigrants from elsewhere will come in and remove the trees tomorrow? By establishing and enforcing local people’s rights of ownership in forest areas, their incentives for wise management of such areas will be strengthened.

A growing number of cases show that the establishment of local ownership of biodiversity results in increased incentives to conserve it. A recent study of nontimber forest products collected in Botswana, Brazil, Cameroon, China, Guatemala, India, Indonesia, Sudan, and Zimbabwe found that one of the determinants of success was the degree to which the participants’ property rights were legally recognized. Zimbabwe’s Communal Areas Management Programme for Indigenous Resources (CAMPFIRE) gives local people the right to manage herds of wild animals such as elephants. Without these ownership rights, villagers would kill all the animals to prevent them from trampling crops. CAMPFIRE does permit some hunting, but because villagers can often earn more by selling hunting concessions to foreigners, they have an incentive to manage the animals in a sustainable fashion.

Assigning property rights is not a cure-all. It can be difficult to establish and enforce ownership over goods that have traditionally not been subject to private ownership. This is particularly true in areas undergoing rapid social transformation, political upheaval, and communal violence, which is often the case in developing countries. In addition, even if a land title is secure, an owner will not keep the parcel intact if more money can be earned by altering it.

Finding the right approach

Although situations exist in which bioprospecting, collection of nontimber forest products, and ecotourism generate earnings that can motivate conservation, these situations are the exception rather than the rule. And even when such activities provide some incentives for conservation, they typically do not provide sufficient incentives.

Why, then, has such emphasis been put on these kinds of dubious economic mechanisms for saving biodiversity? Because of the natural human tendency to hope that difficult problems will have easy solutions. Private and public philanthropists do not want to be told that they cannot achieve their objectives because of the limited budgets at their disposal. Yet significant conservation cannot be accomplished on a shoestring budget. You get what you pay for.

The establishment of local ownership of biodiversity can result in increased incentives to save it.

Conservation advocates and their financial backers also believe that touting the purported economic values of conservation generates broad support. If the public thinks that bioprospecting, nontimber forest products collection, or ecotourism generate high earnings, they will be more eager to support conservation. There are reasons for doubting the wisdom of this argument, even if one is not offended by its cynicism. What happens if people eventually realize that biodiversity is not the source of substantial commercial values? Will conservation advocates lose credibility? More important, the take-home message of many current strategies for biodiversity conservation may be perceived to be that it is in the interest of the people who control threatened ecosystems to preserve them. This view might prove to be counterproductive. Why should individuals or organizations in wealthy countries contribute anything to maintain threatened habitats if drug companies, natural products collectors, or tour companies can be counted on to do the job?

The reality is that these entities cannot be counted on to finance widespread conservation. Only well-to-do people in the industrial world can afford to care more about preserving biodiversity in the developing world than the residents there. Perhaps in some cases local economic activities will help reduce the rate of biodiversity loss. But to stem that loss globally, we must, in the short run at least, pay people in the developing tropics to prevent their habitats from being destroyed. In the long run, they will be able to act as strong stewards only when they too earn enough money to care about conservation.

Recommended Reading

  • Charles M. Peters, Alwyn H. Gentry, and Robert O. Mendelsohn, “Valuation of an Amazonian Rainforest,” Nature, Vol. 339 (June 29, 1989): 655-656.
  • R. David Simpson and Roger A. Sedjo, “Paying for the Conservation of Endangered Ecosystems: A Comparison of Direct and Indirect Approaches,” Environment and Development Economics, Vol. 1 (May 1996): 241-257.
  • R. David Simpson, Roger A. Sedjo, and John W. Reid, “Valuing Biodiversity for Use in Pharmaceutical Research,” Journal of Political Economy, Vol. 104 (February 1996): 163-185.
  • Douglas Southgate, Tropical Forest Conservation: An Economic Assessment of the Alternatives for Latin America. New York: Oxford University Press, 1998.
  • Michael J. Spilsbury and David Kaimowitz, “The Influence of Policy Research and Publications on Conventional Wisdom and Policies Affecting Forests.” Bogor, Indonesia: working paper, Center for International Forestry Research, 1998.
  • Michael Wells and Katrina Brandon, with Lee Hannah, People and Parks: Linking Protected Area Management with Local Communities. Washington, D.C.: The World Bank, 1992.
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Cite this Article

Simpson, R. David. “The Price of Biodiversity.” Issues in Science and Technology 15, no. 3 (Spring 1999).

Vol. XV, No. 3, Spring 1999