Ecological economics -new discipline that integrates biodiversity and economics -environmental degradation and species loss occur as a by-product of human economic activities -economics are based on Smith's (1909) Principle of Free Exchange: "It is not upon the benevolence of the butcher, the baker, or the brewer that we eat our daily bread, but upon his own self-interest". All parties involved in an economic exchange expect to improve their own situation.

-those that participate in economic exchange generally accept its cost and benefits. Costs or benefits that are hidden in economic exchanges are called externalities -externalities can result in market failure and often occur in industry that affect biodiversity Exs. Some types of logging, some types of farming, commercial overfishing, energy companies that pollute, urban sprawl

-natural resources such as clean air, water, soil quality, biodiversity, and scenic beauty are considered to be externalities that are common property resources -misuse of common property resources has resulted a market failure called tragedy of the commons (Hardin, 1968; 1985) Tragedy of the commons -common property resources are used for private gain and a market failure ensues -often involves large companies and government -regulation in large bureaucracies will always involve people with a "get mine and get out" mentality

Classic examples of tragedy of commons: 1) leasing of publicly owned grazing lands -stockmen in the western USA can raise his cattle on government land managed by the Forest Service often leasing it for about 1/5 of the cost of surrounding private land Ex Idaho, Forest Service paid out 35 million for maintaining grazing lands but took in only 11 million as fees -some stockmen receive subsidies to raise the beef -costs were commonized (to taxpayers) while profits from the sale of beef were privatized (to stockmen)

2) clear cutting instead of ecological forestry in national forests commonized costs: lost opportunities to visit wilderness areas, lost ecosystem services, payment of subsidies to timber companies privatized benefit: huge profits for a few large timber companies 3) pollution by industry commonized costs: health risks to individuals, cost of clean-up by EPA or private companies privatized benefit: savings by companies that use land, water or air for free disposal of waste

4 Some solutions to Tragedy of Commons: -before these kinds of things can be done, a value must be assigned to biodiversity

Types of Economic Value 1. Direct use value (private goods, commodity values) -products harvested by people 2 categories: a. consumptive use value -products consumed locally b. productive use value -products sold in non-local markets 2. Indirect use values (public goods or nonconsumptive use value) -products that are not harvested 3. option value -future products that may benefit humans 4. existence value -amount people are willing to pay to insure the existence of biodiversity. Related to bequest value, which is what people are willing to pay to protect something for their children

4.5 Evaluating the success of a development project must incorporate the full range of its environmental effects

Direct use value (private goods, commodity values) -products harvested by people 2 categories: a. consumptive use value -products consumed locally -often obtained by rural peoples -Exs. 80% of world's population relies on traditional medicines, protein from wild animals, fuel from plants

4.6 (A) Wild animals provide people with a crucial source of protein and income in many areas of the world; (B) Wild animals provide a crucial source of protein in a South Korean market

4.7 One of the most important natural products required by local people in India is fuelwood

b. productive use value -products sold in non-local markets Several major types: 1) forest products -135 billion per year from timber -non-timber products include game, fruit, gums, resins, honey, and medicinal plants 2) natural pharmacy -rose periwinkle and taxol used in treating cancer and many others -horseshoe crab blood contains chemical to detect bacterial contamination of medicines administered by injection -all of 20 most frequently used pharmaceuticals are based on a chemical first identified in natural products = 6 billion per year

4.68 The timber industry is a major source of revenue in many tropical countries-logs, honey, & fruit

4.9 Medicines are often derived from natural products like plants growing in the local area

4.10 Horseshoe crabs in shallow coastal waters-bait, wildlife food, bacterial contaminant detection

I indirect use values (public goods or nonconsumptive use value) -products that are not harvested -some estimate that ecosystem services (production of food, water, fiber and fuel; climate controls; primary production; filtering pollutants; soil formation; ecotourism) are worth about 33 trillion per year. Since the global gross national product (total value of global annual output of goods and services) is 18 trillion, human societies are totally dependent on ecosystem services -ecotourism has increased greatly in last few decades Ex. Box 4.1 US National Parks

Box 4.1 In the greater Yellowstone region, real income from extractive industries vs. real income from the rest of the economy

4.2 Agricultural ecosystems, forestry activities, and industries are usually valued by the products that they produce

3 Results of studying ecological economics: