Coaseian Biodiversity Conservation and Market Power

We apply a land-use approach to biodiversity conservation (BC) by assuming that the global public good ‘biodiversity’ is positively correlated with the share of land protected by land-use restrictions against the deterioration of habitats, ecosystems, and biodiversity. The willingness to pay for BC is positive in developed countries (North), but very low in developing countries (South). Taking the no-policy regime as our point of departure, we analyze two concepts of BC: the northern countries’ financial support of BC in the South, and the coordination of northern countries’ BC efforts. In each regime, governments may either take prices as given or may act strategically by seeking to manipulate the terms of trade in their favor. Our numerical analysis yields results with unexpected policy implications. If northern countries support BC financially in the South without coordinating their actions, the protected land, biodiversity and welfare increase so slightly that this BC policy is almost ineffective. The BC concept with a Coaseian flavor—in which northern countries support BC financially in the South and coordinate their action—is efficient if governments act non-strategically. Otherwise, the concept is an ineffective BC policy instrument, because the incentives for expanding the protected land the BC policy creates are so strong that biodiversity actually becomes excessive.