Natural Capital Market Design

28 Pages Posted: 10 Oct 2018

See all articles by Alexander Teytelboym

Alexander Teytelboym

University of Oxford - Department of Economics; University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Date Written: September 16, 2018


Renewable natural capital — terrestrial and marine ecosystems, fisheries, biodiversity, and groundwater — is in decline around the world affecting livelihoods of millions of people. Natural capital market design uses economic theory and analysis to develop practical solutions for maintaining, restoring, and improving natural capital. Many successful natural capital marketplaces (e.g. for emissions reduction, fish harvesting, and wetland restoration) focus on efficient trading of property rights. But many other natural capital markets (e.g. carbon sequestration offsets, water quality, and groundwater abstraction) are characterized by heterogeneity and high transaction costs that make trading difficult. We argue that in order to fix many natural capital market failures policymakers should instead pay more attention to the initial allocation of property rights: this is particularly crucial in many markets for ecosystem services (e.g. biodiversity conservation and watershed protection) which exhibit ecological complementarities. We propose several promising designs natural capital marketplaces which could fairly and efficiently allocate property rights over different ecosystems.

Keywords: Market Design, Combinatorial Auctions, Environmental Economics, Natural Capital

JEL Classification: D44, D47, H23, Q5, Q15

Suggested Citation

Teytelboym, Alexander, Natural Capital Market Design (September 16, 2018). Available at SSRN: or

Alexander Teytelboym (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

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