The Annual Review of Resource Economics
Department of Economics and Finance, University of Wyoming, Laramie
Scientific evidence suggests that economic activity is threatening All rights reserved global biodiversity in ways that could severely degrade nature’s 1941-1383/09/0904-0000$20.00 flow of ecosystem services. Yet, there is relatively little work in economics that addresses biodiversity loss. Some economists have called for better integration of economic and ecological models to address biodiversity and the attendant ecosystem services. Current integrated approaches in economics are discussed, and they take in ecosystem services, ecosystem externalities, and substantial ecological modeling. Much of the modeling uses Lotka-Volterra equations, which are standard in ecology, although there is concern that the equations lack the microfoundations of plant and animal behavior.
An alternative approach is to admit microbehavior using economic optimization techniques that build adaptive ecological systems.
However, much more effort is needed to assess whether admitting more ecological detail into economic models will be fruitful.
28. The conservation of natural resources is the fundamental problem. Unless we solve that problem it will avail us little to solve all others.
Theodore Roosevelt address to the Deep Waterway Convention, Memphis, Tennessee, 4 October 1. INTRODUCTION Bioeconomic modeling dates back at least to the Faustman forest rotation model and, outside forestry, to the fisheries work of Gordon (1954) and Scott (1955), the theoretical and empirical examination of waterfowl by Hammack & Brown (1974), and Clark’s (1976) influential mathematical bioeconomics book. This paper does not survey bioeconomic modeling, but it does discuss a subset of the area labeled ecological-economic modeling. The aim is to draw attention to models in the economic literature that integrate a significant ecological component. Paring down from a survey of bioeconomics narrows the focus considerably, but doing so still leaves a large enough body of work that some of it inevitably will be missed. What is discussed, however, represents interesting analyses that may lead to insights and policies that are not available from less integrated models.
The work discussed is based on the economy-ecosystem interface in Figure 1 (see color insert), which contains the basic trade-off that anthropogenic activity depends on ecosystem services but generates ecosystem externalities. Biodiversity plays an important role in ecosystem functions from which flow values to humans that economists label direct use, indirect use, and existence (Goulder & Kennedy 1997). These values can be conveniently, if not neatly, divided into the Millennium Ecosystem Assessment’s (MEA 2005) classification of ecosystem services: supporting (e.g., soil formation, nutrient cycling), regulating (e.g., climate regulation, water purification), provisioning (e.g., food, wood), and cultural (e.g., recreation, aesthetic). The supporting and regulating services bear the economy’s circular flow, whereas the provisioning and cultural ecosystem services are inputs into production and consumption activities. The anthropogenic activity generates ecosystem externalities, which are distinguished from traditional externalities because they involve internal adjustments within ecosystems (Crocker & Tschirhart 1992) (see Ecosystem Externalities, sidebar below). In Figure 1 the anthropogenic activities creating ecosystem externalities are divided into the five drivers of biodiversity loss that are discussed in the next section.
ECOSYSTEM EXTERNALITIES
Anthropogenic activities use ecosystem services, and the consequent impacts on plants and animals generate ecosystem externalities. That is, following activities, individual plants and animals adapt, species populations alter their paths toward different states, possibly irreversibly (Dasgupta & Ma ¨ler 2004, Brock & Xepapadeas 2004), and ecosystem functions and the flow of ecosystem services are altered. If economic agents who receive the altered flows are not compensated, there is said to be an ecosystem externality.
Models covered herein pose an economic problem that includes at least one ecosystem service or the damage to resources providing at least one ecosystem service, at least one ecosystem externality, and an integrated ecological component. An example may help 28.2 Tschirhart clarify the scope of work. A large percentage of harvesting papers in economics use the following single-species logistic growth function as their ecological component:
_ ¼ rN 1 À N ; ð1Þ N K where N is the species population density, r is the difference between the per capita birth _ and death rates or the intrinsic growth rate, K is carrying capacity, and N is a time derivative. This function is an extremely simple form of density-dependent growth regulation (Kot 2001), and it has been criticized for its lack of biological realism (Getz 1984, Murray 2002) (see Density-Independent Growth, sidebar below). Although lack of realism permeates many ecological and economic models and is not necessarily a shortcoming, the economic work employing Equation 1 is not covered here because it does not include an ecosystem externality. The entire ecosystem beyond the single species is collapsed into K. There is no opportunity to investigate how harvesting impacts biodiversity and ecosystem function, and thereby impact ecosystem services, beyond the harvest-provisioning service.
DENSITY-INDEPENDENT GROWTH
Density-independent growth implies (dN/dt)/N is independent of N. Whether growth is regulated by density-dependent biotic factors (competition, disease) or density-independent abiotic factors (weather, climate) was debated in ecology from the 1930s to the 1950s, although now both factors are considered important (Kot 2001).
A main theme in this paper is that biological systems are comprised of individual organisms that exhibit predictable behavior in response to environmental constraints.
Consequently, ecological-economic modeling ought to include those portions of behavior that have a bearing on policies. To this end, and after motivating the need for integrated modeling in Section 2, the structure of the paper is to begin with the most popular ecological models of species interactions and show how they are used in economics. Then the point is made that these models lack behavioral microfoundations of the type economists pioneered with respect to human behavior. Models that develop microfoundations are examined, followed by a discussion of valuing the biodiversity that underpins ecosystem services. The conclusion addresses the usefulness of integration for policy making.
2. MOTIVATION FOR ECOLOGICAL/ECONOMIC MODELS
Late in the twentieth century, Perrings et al. (1995) indicated that biodiversity loss and climate change were the two global environmental transformations that were garnering obsessive public interest, and that of the two, climate change dominated the scientific and policy agenda. The difference today is that climate change also dominates the public Some economists introduce habitat into the growth function [e.g., K = K(habitat) in Equation 1], which is useful for linking a driver of biodiversity loss to economic decisions (Swallow 1990, Skonhoft 1999, Barbier 2003).
Also not covered is the economic forestry literature. Authors have modeled multiple forest ecosystem services (Hartman 1976, Swallow et al. 1990), although the ecological component is usually a standard single-stand model.
interest. Consider two high-profile, exhaustively researched reports that have been published recently: MEA (2005), which reviews biodiversity loss and its consequences for human well-being, and the Nobel Prize–winning report from the Intergovernmental Panel on Climate Change (IPCC 2007). A search for MEA versus IPCC on the New York Times Web site reveals 211 results for biodiversity versus 18600 results for climate change.
Similar Web-site searches on other information outlets yield the following results: Time Magazine (2 versus 387), The Economist (2 versus 423), Der Spiegel (6 versus 200), People’s Daily (8 versus 132), National Geographic (4 versus 188), Science (16140 versus 201730), and Nature (39555 versus 159682).
Perrings et al. (1995) speculated that the disproportionate public concern and commitment of resources to climate change versus biodiversity loss is justified if the dire predictions of biologists regarding the latter are wrong. But they reject this speculation, and they are supported by continuing and voluminous evidence of deteriorating ecosystems. Every ecosystem on Earth is significantly impacted by anthropogenic activities in ways that lead to biodiversity loss (Vitousek et al. 1997a), in spite of the fact that economic activities are founded on ecosystem services that flow from biodiversity (Dasgupta 2001).
Consider the five main drivers of biodiversity loss identified in MEA (2005) and listed in Figure 1: (a) habitat change, (b) invasive species, (c) pollution, (d) overharvesting, and (e) climate change. Habitat change follows from humans transforming 50% of Earth’s icefree land surface to agricultural and urban usage (Chapin et al. 2000), appropriating 54% of the available fresh water (Postel et al. 1996) and 40% of vegetation’s net primary production (Vitousek et al. 1986). The human population has increased 30% since the latter estimate. Invasive species may be intentionally or unintentionally introduced, often through international trade (Costello & McAusland 2003, Margolis et al. 2005, Merel & ´ Carter 2008), and they pose significant risks to society (Lodge 2001). Pimentel et al.
(2005) estimated annual damages at $120 billion in the United States. In economics, pollution is usually associated with human health, but its impact is so extensive that biogeochemical cycles are being altered. Industrial nitrogen fixation has doubled nitrogen in the environment, which substantially alters ecosystem function (Vitousek et al. 1997b).
Historically, overharvesting has been responsible for stunning extinctions such as the passenger pigeon (Conrad 2005), and recent literature describes how overharvesting decimates marine ecosystems. Historical populations of large vertebrates (whales, sharks, turtles, etc.) were “fantastically large” (Jackson et al. 2001), and Worm et al. (2006) projected collapse of all currently harvested marine species by the mid-twenty-first century. Finally, climate change on land is shifting the distribution and abundance of species (Thomas et al. 2004), and at sea, warmer surface water is decreasing marine productivity (Jackson 2008). Thomas et al. (2004) estimated that 15%–37% of species will be committed to future extinction by the mid-twenty-first century.