Valuing Biodiversity from an Economic Perspective: A Unified Economic, Ecological and Genetic Approach

Abstract

We develop a conceptual framework for valuing biodiversity from an economic perspective. We consider biodiversity important because of a number of characteristics or services that it provides or enhances. We argue for a dynamic economic welfare measure of biodiversity that complements the existing literature on benefit-cost approaches and genetic distance/phylogenic tree approaches, which to date have been more static. Using a unified model of optimal economic management of an ecosystem under ecological and genetic constraints, we identify gains realized by management policies leading to a more diverse system, using the Bellman state valuation function of the problem. We show that a more diverse system could attain a higher value even though the genetic distance of the species in the more diverse system could be almost zero. We relate this endogenous measure of the biodiversity value to ecologically/biologically oriented biodiversity metrics (species richness, Shannon or Simpson indices).

Keywords: Biodiversity valuation, ecosystem services, ecological and genetic constraints, Bellman state valuation function.

JEL Classification: Q2