Oliver Deke Institute for World Economics (IfW) Kiel Supply side externalities in markets for genetic resources

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

Structure of the talk Empirical evidence Theoretical modelling framework Solving for the equilibrium Numerical simulation Summary & Outlook >>To what extent can trade with genetic resources induce conservation?

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) Theoretical background: Simpson et al.(JPE,1996) [SSR] extent of conservation market structure ecological conditions costs and revenues Boundaries of habitats  boundaries of land properties: Externalities among landowners Monopsony: only one R&D firm

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) strong ecological stability: weak ecological stability: exp.payoff = value of x species - cost of compensation value of x species species within a parcel participation constraint max.number of contracts

Solving for the equilibrium 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): strong ecological stability exp. value of a single GR > cost of testing + share of cost of compensation

Solving for the equilibrium (2) 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: weak ecological stability value of a marginal conserved parcel = cost of compensation

Solving for the equilibrium (3) unpredictable ecological adjustments > thresholds if not enough parcels are conserved, no species with promising genetic information will survive. weak ecological stability - variant modified equilibrium condition for an interior solution: conserving a marginal parcel has two effects: more species will exist; their survival will become more likely

Numerical simulation define the value of genetic information V in relative terms of the costs of conservation  for parameter values, numbers from existing studies

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

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