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Supply side externalities
in markets for genetic resources
Oliver Deke
Institute for World Economics (IfW) Kiel
Motivation
Markets for genetic resources
• Genetic resources show different
economic properties than other natural resources –
uncertain value and non-rival use of genetic information
• Instrument for biodiversity conservation (CBD)
natural areas withheld for a supply of genetic resources
other ecosystem services jointly provided as public goods.
Motivation (2)
Issues in genetic resources:
• markets  common property resources
• property rights
-design of (intellectual) property rights
for a sustainable (in-situ) supply of genetic information
-equitable sharing of benefits
“access and benefit sharing”-regulation
-contribution to biodiversity conservation
>>To what extent can
trade with genetic resources
induce conservation?
Structure of the talk
•
•
•
•
•
Empirical evidence
Theoretical modelling framework
Solving for the equilibrium
Numerical simulation
Summary & Outlook
Empirical evidence
• market prices and traded quantities?
anecdotal evidence on trade with genetic resources
variety of arrangements; yet limited data
• economic studies:
indirect prices > users’ WTP for a single species or
for access to habitats
low WTP (0-20 US$ per ha, e.g.) >> small revenues
>> insufficient incentives for private conservation!
different properties of genetic resources and its uses
>> different results (max. of 9177 US$ per ha, e.g.)
>> different (at least no unambiguous) implications!
Theoretical framework (1)
extent of
conservation
market
structure
ecological
conditions
costs and
revenues
Theoretical background: Simpson et al.(JPE,1996) [SSR]
Monopsony: only one R&D firm
Boundaries of habitats  boundaries of land properties:
Externalities among landowners
Theoretical framework (2)
• (N) landowners; parcels of identical size
land use decision: conservation  conversion
exogenous payoff () from conversion
• firm’s WTP for access to a conserved parcel
value of a collection of species (SSR)
how many species? how dispersed across conserved
parcels?
> impact from externalities: the more parcels are
conserved the more species are preserved.
> even distribution: every species in each conserved
parcel.
Theoretical framework (3)
max Z n, p  V ( x ) - p  n
n ,p
exp.payoff = value of x species - cost of compensation
max.number of contracts s.t . n  N
participation constraint
p   if
value of x species
species within a parcel
n0

 V  r
x
with V x  
 1  1  


and x  x n 



x
n



N
strong ecological stability:

weak ecological stability: x n     n ,0    1
Solving for the equilibrium
strong ecological stability
• the collection of genetic resources is completed before
any noticeable impact results from the conversion in
adjacent places.
• payoff-maximum for the R&D firm:
conclude not more than one contract, any additional
parcel would preserve only redundant species.
• Condition for (n=1):

V  r 
1  1   
N


exp. value of a single GR > cost of testing + share of
cost of compensation
Solving for the equilibrium (2)
weak ecological stability
• immediate ecological adjustments due to conversion in
parcels adjacent to the contracted bioprospecting area.
• firm may not be able to extract all the species
that have existed in the total area
at the point of time when the contract was concluded
- unless more than one landowner is compensated
for his costs of conservation.
• equilibrium condition for an interior solution:


V  r 
V  r
n 1 
n 
 1  1  
 1  1  






value of a marginal conserved parcel = cost of compensation
Solving for the equilibrium (3)
weak ecological stability - variant
• unpredictable ecological adjustments > thresholds
• if not enough parcels are conserved, no species with
promising genetic information will survive.
x n   F n     n 
• conserving a marginal parcel has two effects:
more species will exist; their survival will become more likely
• modified equilibrium condition for an interior solution:


V  r 
V  r
F n 1n 1 
F n n 
 1  1  
 1  1  






Numerical simulation
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conserved parcels
in equilibrium
• define the value of genetic
• for parameter values,
information V in relative terms
numbers from existing studies
of the costs of conservation 
V
k

relative value of genetic information (k)

Summary
• market-induced extent of conservation
impact of ecological sensitivity
(in terms of externalities among parcels that come
into question for bioprospecting)
• benchmark with no externalities –
modest extent of conservation
due to non-rivalry and homogeneous parcels.
• when externalities prevail –
the higher the relative value of genetic information
the more natural areas are allocated to conservation.
• when externalities and thresholds prevail –
it is optimal to conserve not all or very large areas.
Outlook
future research
• stylized ecological modeling (homogeneity)
>heterogeneity of parcels
• market structure - monopsony
>competitive demand: competition in research
• no investment costs of conservation
>land use decision when sunk investment prevail
• static framework
>dynamic aspects: firms’ incentives for long-term
conservation in the presence of non-rivalry
Thank you
for your attention!