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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 n0 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 1n 1 F n n 1 1 1 1 Numerical simulation 1000 900 800 700 600 500 400 300 200 10 00 0 20 00 0 30 00 0 40 00 0 50 00 0 60 00 0 70 00 0 80 00 0 90 00 0 10 00 00 100 0 0 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!