Economics of Environmental Conservation

Economics of

Environmental

Conservation, Second

Edition

Clement A. Tisdell

Professor of Economics, School of Economics, The University

of Queensland, Australia

Edward Elgar

Cheltenham, UK • Northampton, MA, USA

© Clement A. Tisdell 2005

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system or transmitted in any form or by any means, electronic,

mechanical or photocopying, recording, or otherwise without the prior

permission of the publisher.

Published by

Edward Elgar Publishing Limited

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Montpellier Parade

Cheltenham

Glos GL50 1UA

UK

Edward Elgar Publishing, Inc.

136 West Street

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Northampton

Massachusetts 01060

USA

A catalogue record for this book

is available from the British Library

ISBN 1 84376 614 0 (cased)

Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

Contents

List of figures x

List of tables xv

Preface to the second edition xvi

Preface to the first edition xviii

1. Economics and the living environment 1

1.1 Introduction 1

1.2 Welfare economics, environment and the biosphere 2

1.3 Ethics, values and environmental economics:

alternative views 7

1.4 Economic growth, dynamics, uncertainty and the

environment: differing views 12

1.5 Uncertainty, welfare and environmental issues 19

1.6 Conclusion 20

2. Global conservation strategies and concerns 25

2.1 Introduction 25

2.2 A classification of conservation policies 26

2.3 The World Conservation Strategy and Caring for the

Earth: origins, aims and basic principles 30

2.4 Ecological processes and life-support systems:

agriculture, forests, marine and freshwater systems 33

2.5 Preservation of genetic diversity 38

2.6 Sustainable utilisation of species and ecosystems 41

2.7 Significant differences between Caring for the Earth

and the World Conservation Strategy 44

2.8 International conservation concerns and priorities 47

2.9 Concluding comments 49

3. Markets and government intervention in environmental

conservation 52

3.1 Introduction – choices about resource use and

conservation 52

3.2 Market efficiency and externalities 56

3.3 Government policies ‘to correct’ for externalities 65

v

3.4 Public or collective good characteristics associated

with the conservation of nature 70

3.5 Option demands, transaction costs, more on existence

values, bequest, irreversibility and uncertainty 73

3.6 Discount rates as grounds for government intervention 75

3.7 Monopolies and conservation 76

3.8 Common-property and intervention 78

3.9 Failure of political and administrative mechanisms in

relation to conservation 79

3.10 Concluding comment 81

4. Environmental conservation in developing countries 84

4.1 Introduction 84

4.2 Basic conservation problems in the Third World: origin 85

4.3 Population growth and income aspirations 86

4.4 Expansion of the market system 88

4.5 New technology 89

4.6 Problems illustrated by some cases 90

4.7 High effective rates of discount 93

4.8 Difficulties in enforcing conservation measures and

questions of social structure 94

4.9 Policies for influencing and improving conservation

practices in the Third World 95

4.10 Provision of information and education 96

4.11 Appropriating greater gains nationally from

conservation 96

4.12 Tourism as a means of appropriating gains from

conservation 98

4.13 Improving the distribution of gains from conservation

within LDCs 99

4.14 International aid and assistance, loans and trade 101

4.15 Global public good/externality considerations 103

4.16 Concluding observations on conservation in LDCs 105

5. Preservation of wildlife and genetic diversity 109

5.1 Introduction 109

5.2 Total economic value and the valuation of wildlife and

biodiversity 110

5.3 Managing wildlife as a mixed good: simple analytics 113

5.4 Some economic consequences of interdependence

between species 118

5.5 Criteria for deciding on species to save from extinction 121

vi Economics of environmental conservation

5.6 Property rights in genetic material, GMOs, and the

conservation of biodiversity 126

5.7 Globalisation, market extension and genetic diversity

of domesticated animals and plants 128

5.8 Concluding comments 129

6. Open-access, common-property and natural resource

management 132

6.1 Types of property and general consequences 132

6.2 Open-access: economic failures and their consequences 135

6.3 Policies for managing open-access resources 140

6.4 Further discussion of features of open-access to

resources and its regulation 143

6.5 Ranching and farming as means to overcome open￾access problems and conserve species 146

6.6 Concluding comment 150

7. Economics of conserving natural areas and valuation techniques 153

7.1 Introduction: nature and availability of natural areas 153

7.2 Benefits and uses of natural protected areas 155

7.3 An overview of approaches to estimating the

economic value of non-marketed commodities 156

7.4 Travel cost method of estimating the value of a

natural area 158

7.5 Contingent valuation of natural areas 163

7.6 Hedonic price valuation of natural areas 167

7.7 Some additional economic valuation techniques 169

7.8 Using total economic values for social choices about

resource use 169

7.9 Back to some fundamentals of economic valuation 171

7.10 Government versus non-government provision of

natural areas 173

7.11 Concluding comments 175

8. Forestry, trees and conservation 179

8.1 Introduction: forest cover and uses 179

8.2 Commercial forestry for timber production 181

8.3 Multiple purpose management of forests 186

8.4 Forests and trees in less developed countries 188

8.5 Economic policies, pollution, forests and trees 192

8.6 Forest plantations versus natural forests: a discussion 195

8.7 Concluding remarks 196

Contents vii

9. Agriculture and the environment 199

9.1 Introduction 199

9.2 Externalities and agriculture 200

9.2.1 Agricultural externalities on agriculture 200

9.2.2 Agricultural spillovers on non-agricultural

sectors and interests 206

9.2.3 Spillovers from other sectors on agriculture 207

9.3 Sustainability of agricultural systems 208

9.4 The Green Revolution, organic agriculture,

permaculture 211

9.5 Pest and disease control in agriculture 216

9.6 Agriculture, biodiversity, trees and wildlife

conservation 218

9.7 Genetically modified organisms in agriculture:

economic and biodiversity issues 220

9.8 Concluding observations 222

10. Tourism, outdoor recreation and the natural environment 225

10.1 Introductory issues, dependence of tourism on the

natural environment 225

10.2 Tourism destroys tourism and tourist assets 226

10.2.1 Congestion or crowding and tourism 227

10.2.2 Destruction of tourism resources by visitors 229

10.3 Tourism area cycle and more on the dynamics of

tourism 231

10.4 Impact of pollution and environmental damage on

tourism and benefits from pollution control 234

10.5 Tourism, conservation and the total economic value

of a natural area and economic impact analysis 237

10.6 Sustainability, ecotourism and economics 239

10.7 Conflicts between tourists, variety in tourist areas,

public finance issues and national gains 240

10.8 Concluding observations 241

11. Sustainable development and conservation 243

11.1 Background 243

11.2 Sustaining intergenerational economic welfare 244

11.3 Capital, natural resource conversion and human

welfare: further considerations 248

11.4 Survival of the human species for as long as possible 251

11.5 Issues raised by the views of Daly and Georgescu￾Roegen about sustainability 253

viii Economics of environmental conservation

11.6 Resilience of production and economic systems and

stationarity of their attributes 256

11.7 Cost–benefit analysis and sustainability 258

11.8 Sustainability of community 260

11.9 Sustaining biodiversity 261

11.10 Concluding remarks 263

12. Population, economic growth, globalisation and conservation: a

concluding perspective 267

12.1 Introduction 267

12.2 Global population levels: characteristics and

projections 268

12.3 Environmental consequences of population growth

and economic demands 269

12.4 Environmental Kuznets curves: do they provide

grounds for environmental optimism? 270

12.5 Is economic globalisation favourable or unfavourable

to environmental conservation? 273

12.6 Concluding observations 274

Index 277

Contents ix

Figures

1.1 Choice and trade-off between supply of man-made goods

and those provided by the natural environment 5

1.2 Choosing between goods provided by the natural

environment and man-made goods subject to constraints or

minimum ‘standards’ 7

1.3 Ricardian model of limits to economic growth emphasising

importance of population levels and of technological

change 13

2.1 Difference in constrained optimum for welfare maximisation

(in relation to conservation and development) which pay no

attention to differences in absolute welfare 28

3.1 In the absence of environmental spillovers, competitive

markets result in supplies of private goods that efficiently

satisfy human wants 57

3.2 When unfavourable environmental spillovers occur, market

systems usually result in excessive environmental damage

from a social economic viewpoint 58

3.3 An illustration of some situations in which public

intervention may be required on economic grounds to

reduce or eliminate an environmental spillover, even though

the externality is infra-marginal 59

3.4 Illustration of divergence between social and private

marginal cost due to externalities or spillovers and

consequent social ‘deadweight’ losses 61

3.5 Private net benefit gained by land clearing compared with

various social net benefit curves with differing implications

for the optimality of the extent of private land clearing 62

3.6 Pursuance of private gain may result in too much natural

vegetated land being developed for commercial purposes.

This is so if favourable externalities arise from natural

vegetation cover and a social viewpoint is adopted 64

3.7 The optimal level of conservation of the population of a

species considered as a pure public good on the basis of its

existence value 71

3.8 In the above case, the higher is the rate of interest used for

x

discounting the more likely development is to be preferred to

conservation of a natural resource 76

3.9 Monopoly in this case has no conservation advantages and

results in a deadweight social loss 77

3.10 Illustration of how majority voting may lead to insufficient

or too much conservation judged by the Kaldor-Hicks

economic efficiency test 80

4.1 Conservation of living natural resources in a developing

country to some extent provides a global public good.

Hence, an optimal amount of conservation may not occur in

developing countries if LDCs follow their own self-interest 103

5.1 Species of wildlife sometimes provide a mixed good. In such

cases, private harvesting of species to supply private goods is

unlikely to maximise economic welfare because the social

marginal cost of harvesting diverges from the private

marginal cost of harvesting the species 114

5.2 The mere fact that the private cost of harvesting a species

diverges from the social cost of harvesting it does not imply

that its level of harvest is always socially inappropriate or

suboptimal 115

5.3 The social marginal cost of harvesting a species may be so

high that no harvesting is socially optimal. In such cases, all

private harvesting is inappropriate 116

5.4 A wildlife species may be regarded as a pest by some social

groups and as an asset by others. Using the Kaldor-Hicks

criterion, the level of harvesting of the species can be

adjusted to take this into account 117

5.5 The socially optimal combination of populations of

interdependent species may differ from their natural

combination and encourage human intervention to change

the population mix 119

5.6 Strengthening of the global property rights of individual

nations in their genetic material may provide an incentive to

conserve this material 127

6.1 Open-access results in resources being allocated in

accordance with the value of their average product rather

than the value of their marginal product and this leads to a

deadweight social loss indicated here by the hatched triangle 136

6.2 Backward-bending supply curve for the harvest of species to

which there is open-access. This can result in perverse

conservation decisions and a smaller population of the species

than is desirable for minimising the cost of the actual harvest 138

Figures xi

6.3 Sustainable harvesting levels as a function of the level of

population of a species 139

6.4 In an open-access industry, technological progress which

reduces per unit harvesting costs might reduce economic

welfare and threaten the existence of a species 139

6.5 Taxes on the catch or tradeable permits may be used to

improve allocative efficiency in the case of an open-access

resource. But if economic gains are to be made, the cost of

administering such schemes must not exceed the benefits

otherwise obtained 141

6.6 As the demand for a renewable harvested resource, to which

there is open-access, rises, the social economic costs of its

‘excess’ harvesting increases. In addition, the stock of the

resource declines and as shown by Figures 6.2 and 6.3, the

resource faces increasing risk of extinction as a result of

overharvesting 144

6.7 While farming may favour the conservation of wild stock of a

species, it is not bound to do so. This is because it can increase

demand for the use of the species and it may cause the supply

schedule of supplies from the wild of the harvested species to

move upward and to the left (note that this shift in the

supply schedule is not illustrated) 148

6.8 Farming has altered the global genetic stock. It has resulted

in losses as well as additions to the stock 150

7.1 Zoning of areas depending upon travel distance to an

outdoor attraction A 159

7.2 Relative frequency of visits (demand for visits per capita) as a

function of the (travel) cost per visit 160

7.3 Demand curve for visits to an outdoor area. Consumers’

surplus in the absence of an entry fee is shown by the

hatched area 161

7.4 Evaluation of alternative land-use taking account of total

economic values 170

7.5 Marginal evaluation curves of conservationists and developers

in relation to the percentage of natural area developed 172

7.6 Under provision of public goods (protected areas in this case)

leaves scope for their provision by non-governmental

organisations 174

8.1 Quantity of timber production available from a forest as a

function of its age 182

8.2 Determining the optimal growing period or harvest cycle for

a forest in order to maximise its economic sustainable yield 184

xii Economics of environmental conservation

8.3 The economics of mixed land-use (multiple purpose use of

forested land) depends only partially on biological production

possibilities. But if the production transformation curve is of

the form of KLMN, economic efficiency requires mixed

production and mixed land-use 187

8.4 Solutions to transboundary or transfrontier pollution, such

as air pollution causing acid rain, are difficult to achieve. The

polluter may either pay to pollute or be paid not to pollute.

The Kaldor-Hicks solution can be achieved by either policy

but the income distributional consequences are different 193

9.1 A case in which activities by one group of agriculturalists has

negative spillovers on another group of agriculturalists 202

9.2 Economic loss resulting from negative spillover on

downstream agriculturalists of water use by upstream

agriculturalists 203

9.3 Free access to water from an (underground) water basin can

result in inefficient reduction in the availability of the

resource 205

9.4 Two agricultural systems with different degrees of

sustainability 209

9.5 Sustainability or otherwise of agricultural systems from a

different point of view to that considered in Figure 9.4 210

9.6 When chemical agricultural systems are adopted agricultural

yields or returns become very dependent on them. Withdrawal

of chemicals results initially in marked depression of these

yields or returns. So agriculture tends to become locked into

such systems once they are adopted 214

9.7 Illustration of how the introduction of GM crops could lead

to a net loss in social economic welfare 221

10.1 A case in which the number of tourist visits to an area is

influenced by aversion to crowding 227

10.2 As the cost of visiting a tourist area declines, consumers’

(tourists’) surplus may not increase but decrease. This can

occur if there is aversion to crowding because lower costs of

a visit will usually bring more visitors 228

10.3 Consequences for tourism demand of deterioration of a

tourist asset due to tourist visits 230

10.4 Typical tourism area cycle according to Butler (1980) 232

10.5 Tourism area cycle not caused by environmental damage due

to tourist loads 233

10.6 Illustrations of loss caused to the tourist industry and to

tourists by pollution 234

Figures xiii

10.7 A case in which pollution from sources outside the tourism

industry imposes external economic costs on tourism in terms

of losses in producers’ and consumers’ surpluses 235

10.8 A case in which defensive environmental expenditures (on pest

control) are economic because of their impact in increasing

tourism 236

10.9 Total economic value: economic conflict and non-conflict

zones between benefits from tourism and other economic

values 237

11.1 Dependence of human welfare on the ratio of man-made to

natural capital and implications for conversion and use of

natural capital 250

11.2 Hypothetical optimal path for maximising human welfare of

the ratio of man-made capital to natural capital 251

11.3 Some alternative views of the relationship between population

levels, economic activity levels and the length of existence of

the human species 252

11.4 Alternative sustainable economic solutions depend on

objectives which in turn depend on ethics 255

11.5 Two production or economic systems with different degrees

of sustainabilty 258

12.1 Environmental Kuznets curves are widely believed to be

typically of the form shown. They are often used to support

the view that economic growth will eventually result in

environmental improvement and a sustainable future 272

xiv Economics of environmental conservation