The Value of Habitat Conservation for Bioprospecting Sean B. Cash Assistant Professor, Dept. of Rural Economy University of Alberta Fourth BioEcon Workshop on the Economics of Biodiversity Conservation Venice, August 28 – 29, 2003

Why Higher Plants are Valuable to Pharmaceutical Companies Up to 1/4 of all drugs derived from plants Taxol was derived from the Pacific yew Cortisone and the first oral contraceptives derived from Central American yams Aspirin derived from a substance found in willow trees Merck/InBio agreement in Costa Rica

Rents to Pharmaceutical Development

Previous Work Farnsworth and Soejarto (1985)  $1.5 million per year for each extinct species Principe (1989)  $300,000 per species Simpson, Sedjo and Reid (1996)  $9,400 as an upper bound for the marginal species; almost no incentive to conserve land Rausser and Small (2000)  Value of a research lead

SSR Model Value of the marginal, not average, species drives conservation incentives Value is negligible for low or high probability of discovery Expected value of an additional species is

SSR Model If testing for a particular use ends with the first success, the value of a collection of n species is The expected value of an additional species for any given use is therefore

Expected Value of the Marginal Species as a Function of p (SSR)

Incorporating Spatial Correlation Let I j =1 if species j is beneficial; otherwise I j =0, i.e., p = prob(I j =1) Assume Corr(I j, I k ) = f(d jk ) Simple case: Corr(I j, I k ) =  if I j, I k are in same region, Corr(I j, I k ) = 0 otherwise prob(I j =1|I k =1) is then  1 - p) + p Replace p with this conditional probability when a hit is observed

Value of the Marginal Hectare Area-species curve predicts n i (A) =  i A Z, where  i is species richness in i and Z  Can predict the loss of endemic species from a one-hectare loss of habitat Combined with v(n) and conditional probability p i, value of marginal hectare if a hit is previously observed is

Results (1)

Incorporating Expected Loss of Habitat If genetic resources are secure, commercial value of conservation is zero Value of preservation higher in an area where habitat loss is progressing quickly The number of useful species we expect to have tomorrow is number today minus habitat loss, other extinction, and species ruled out by research

Incorporating Expected Loss of Habitat Assuming that d it is realization of habitat loss in hotspot i in period t, per-hectare value of preventing deforestation is where the expected number of useful species surviving the current period is

Results (2)

Conclusions Calculations reported here are not definitive estimates, just possible scenarios Potential role of spatial correlation and expectation of future habitat loss significant Results of Simpson et al. sensitive to these considerations Can mean difference between success and failure of market-based conservation

Other Considerations Perfect substitution of plant compounds for a given use assumed here (and elsewhere) Competition between firms has not been considered Interesting interplay between the two: better products can replace established ones Role of ex situ conservation techniques