A Macroeconomic Model of Biodiversity Protection

doi:10.4236/tel.2013.35A1006

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Theoretical Economics Letters, 2013, 3, 39-44

http://dx.doi.org/10.4236/tel.2013.35A1006 Published Online September 2013 (http://www.scirp.org/journal/tel)

A Macroecono mic M odel of Biodiversity Protection*

David Martin

Davidson College, Davidson, NC, USA

Email: [email protected]

Received July 31, 2013; revised August 31, 2013; accepted September 10, 2013

permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

ABSTRACT

Many biodiversity researchers have responded to the financial constraints faced by policy makers to develop models

based upon the “Noah’s Ark” metaphor, implying that society can save only a limited amount of biodiversity. Unfortu-

nately, as Herman Daly (Land Economics , 1991) pointed out, su ch microeconomic rules can allow an ark to sink albeit

in some optimal fashion. So, I step back to look at the macroeconomic question, how big should the ark be? I start with

Norgaard’s (Ecological Economics, 2010) framework, which is based upon the con cept of a production po ssibility fron -

tier combined with a sustainability criterion. I develop a model from that starting point by shifting to an isoquant fra-

mework while maintaining the strong sustainability criterion. I demonstrate how this model allows for identifying and

addressing the key biodiversity protection policy criteria at the macroeconomic level. One key conclusion from this

modeling is that Daly’s analysis remains remarkably prescient.

Keywords: Biodiversity Protection; Natural Capital; Conservation; Macroeconomics; Sustainable Development

1. Introduction

This paper is motivated by the economic issues arising

from the goal of protecting biodiversity given financial

constraints. Because it is likely that the decline in the

stock of biodiversity will continue [1], countries recently

agreed to increase funding for protecting biodiversity

substantially [2]. However, the funding is still far less

than estimates historically [3] and recently [4] the con-

clusion is necessary. Thus, policy makers are financially

constrained when selecting their biodiversity protection

actions.

Weitzman [5] introduced the Noah’s Ark metaphor to

this situation. Following the Abrahamic tradition (To-

rah Book of Bereshit, Bible Book of Genesis, and

Qur’an Surah 11) that God destroyed the world by flood-

ing it with the exception of the people, animals, and

plants Noah saved in the Ark, this metaphor implies that

a constrained society chooses which aspects of biodiver-

sity to save. The literature that followed such as the stu-

dies reviewed by Brooks et al. [6] basically focuses on

the microeconomic question, which species get to board

the ark? These studies treat the size of the ark (the mac-

roeconomic question) as exogenous; after all, God told

Noah how big to build the ark in the same way that poli-

ticians tell policy makers how much th ey get to spend.

Daly’s [7] critique about using microeconomics to

balance a boat optimally while allowing it to sink (be-

cause the macroeconomics fails) resonates with the

Noah’s Ark metaphor. So, in this paper I work to answer

the macroeconomic question, how big should Noah’s

Ark be? I start with Norgaard’s [8] production possibili-

ties-based model as it explicitly includes a sustainability

criterion. I shift the framework to an isoquant-based

frame-work, but retain the strong sustainability criterion

and show how changes in it are important to the analysis.

I conclude by demonstrating how this model allows ana-

lysts to identify and address key biodiversity protection

criteria at the macroeconomic level.

*I wrote the first few versions of this paper as a Fulbright-Nehru Re-

search Scholar affiliated with the Institute of Economic Growth (Uni-

versity of Delhi). This paper has been improved substantially by the

comments of Dr. Julianne (Mills) Busa and Mr. Surit Das as well as

comments from seminar participants at the Madras School of Econom-

ics, the Sálim Ali Centre for Ornithology and Natural History, the

United States India Educational Foundation South and Central Asia

Conference, the Institute of Economic Growth, the Dhaka School o

Economics, the 2013 meeting of the US Society for Ecological Eco-

nomics, and the 2013 International C o n g ress for Conservation Biology.

2. Starting Points

A popular definition of bi o diversity is E. O. Wil so n’s [ 9] :

“all hereditarily based variation at all levels of organiza-

tion, from the genes within a single local population or

species, to the species composing all or part of a local

community, and finally to the communities themselves

D. MARTIN

that compose the living parts of the multifarious ecosys-

tems of the world.” (p. 1). Expanding upon that defini-

tion Naeem, Duffy, and Zavaleta [10] describe seven

different ways that organisms might exhibit such varia-

tion: taxonomic diversity, phylogentic diversity, genetic

diversity, functional diversity, spatial or temporal diver-

sity, interaction diversity, and landscape diversity. This

ecological richness (reasonably) directly serves humans

within agriculture and as the basis for pharmaceuticals as

well as indirectly in ways that we would value if we un-

derstood these processes better (e.g., Cardinale et al.

[11]). It is the complexity of biodiversity (see Vira and

Adams [12]) that makes its preservation so important and

so difficult.

It is clear that biodiversity is part of our stock of natu-

ral capital [13]. Nature creates it (hence “natural”) and

nature and humans use flows from it to produce goods

and services that we value (so it is a form of capital).

Thus, although this analysis is motivated by and framed

within the context of biodiversity protection, it could be

generalized to the wider context of protecting natural

capital.

One element of biodiversity’s complexity is the sharp

debate about whether biodiversity restored through man-

made ecosystems are components of natural capital.

Åkerman [14] framed this debate as being between the

David Pearce and the Herman Daly perspectives. The

“Pearce perspective” considers natural capital to be like

any of the other forms of capital, and so allows for sub-

stitution between man-made biodiversity and natural

biodiversity. In contrast, the “Daly perspective” views

natural capital as a distinct entity than man can not create,

so it is not possib le to substitute between man-made bio-

diversity and natural biodiversity. The “Pearce perspec-

tive” is consistent with the con cept of weak sustainability

while the “Daly perspective” is consistent with strong

sustainability. I use the strong sustainability criterion

here as Figge [15] used a portfolio-theory based analysis

to show that the weak sustainability criterion alone is

insufficient to achieve the goal of sustainable develop-

ment.

Norgaard [8] integrated a sustainability criterion into

his graphical macroeconomic ecological economics

model of sustainability, which is presented in Figure 1

below. In this model, assume that society is currently

functioning at point A. This point demonstrates that the

current generation is operating inefficiently below the

production possibilities frontier that includes points B

and C. The frontier uses more ecosystem services than

point A does because the social, political, and institu-

tional arrangements include pricing and other distribu-

tional mechanisms that allow society to use ecosystem

services efficiently. To operate more efficiently, the so-

ciety at point A needs to change its social, political, and

Figure 1. Norgaard’s [8] model (Figure 2, p. 1223).

institutional arrangements to permit greater efficiency.

The curved slope of the frontier represents society’s

trade-off between current and future use of the ecosystem

services, and so is based upon the social discount rate

(including equity aspects).

The strong sustainability criterion maps the limits of

ecosystem service use before depletion of biodiversity

begins. So, while Point B is more efficient than Point A

in the sense intra-generational efficiency, it is not so-

cially efficient from an intergenerational sense because it

depletes biodiversity. At Point C society is actually u sing

less biodiversity than it “needs” to use to achieve the

goal of sustainability. That choice might reflect addi-

tional criteria that are not reflected in a traditional eco-

nomic framework, such as equity issues arising from the

distributions of income or resources.

3. A Macroeconomic Model of Biodiversity

Protection

A different representation of the same ideas is presented

in Figure 2, with the focus shifted to a traditional iso-

quant framework. Each point from (and including) Curve

A outward represents a combination of ecosystem ser-

vices used by the present (horizontal axis) or the future

(vertical axis) to achieve a certain lifestyle with a given

set of institutional arrangements. A differen t lifestyle or a

different set of institutional arrangements would change

the location of the curve. Investment in physical or hu-

man capital shifts the frontier in, say from Curve A to

Curve B, representing the concept that fewer ecosystem

services are required to achieve the output goal. The

strong sustainability criterion (the ray from the origin

labeled “SC”) represents the same concept as in Nor-

gaard’s [8] model above. One could add a Safe Minimum

Standard [16] by pivoting that ray downwards to repre-

D. MARTIN 41

Figure 2. Introduction to the model.

sent the buffer.

Figure 3 demonstrates the depletion of biodiversity.

Given an intra-generationally efficient set of social, po-

litical, and institutional arrangements, we see that Point 1

on Curve A depletes biodiversity to the detriment of the

future. The first of three effects of the depletion is for the

intra-generationally efficient frontier to shift outward to

Curve B as society would have used the best biodiversity

first so the remaining bits are more costly to use. Curve

B is drawn assuming as before that the same lifestyle can

be achieved with the same set of social, political, and

institutional arrang ements while a curve between the two

might represent a more efficient state if society were

willing to make those adjustments. Second, the sustain-

ability criterion pivots upward to represent the same

concept in an intergenerational sense. That is, given the

depletion of the best natural capital first it would be more

costly to achieve sustainability across time. Third, soci-

ety moves from starting at Point 1 to Point 2. The key

points about this shift are that Point 2 is now further

away from the origin in both the horizontal and vertical

directions and further away from the sustainability crite-

rion than Point 1. So, the present generation will have to

use even fewer ecosystem services than previously to try

to move towards sustainability. It is possible for society

to move to a point above the sustainability criterio n (e.g.,

choose a point to meet equity criteria not included in a

traditional economic assessment), and it is also possible

that biological growth could pivot the sustainability cri-

terion downwar ds over time.

Figure 3 is drawn as if the depletion of biodiversity

resulted from an intra-generationally rational decision in

the traditional neoclassical economic sense such that

sustainability is not a criterion. On the other hand, the

biodiversity depletion might also result from economi-

cally inefficient decisions such as habitat destruction

associated with inefficient market prices [17] and/or in-

adequate social-political institutions [18]. In that case,

each point would be outside of the relevant isoquant. In

Figure 3. Depleting biodiversity.

such a case, society would have to adopt intra-genera-

tionally efficient policies [17,18] as well as inter-genera-

tionally efficient policies to achieve sustainable devel-

opment.

Returning to the issue of Noah’s ark, Figure 3 allows

us to answer an implied preliminary question: is Noah’s

ark necessary? Yes, as it is impossible for Point 2 to be

or to the left of sustainability criterion SC 2. Even begin-

ning with the (wildly unrealistic?) assumption that soci-

ety is beginning from an intra-generationally efficient

starting point and shifting to an intra-generationally effi-

cient point, it moves further away from sustainability

than it began. As in the Abrahamic tradition, so ciety suf-

fers because it does not consider the intergenerational

implications of the actions it considers to be in its best

interests. So, what are the implications of Noah building

an ark, of biodiversity protection policy?

4. Modeling Biodiversity Protection Policy

Figure 4 below demonstrates how this model represents

the impacts of policies designed to protect biodiversity

from depletion. For a bit of context, consider the example

of a wetland ecosystem downstream of a dam and its

command area. Society might protect biodiversity in that

ecosystem by allowing the river to flow naturally, there-

by redirecting water from the farmers in the dam’s com-

mand area to the wetland to stab ilize the existin g wetlan d

system from potential water shortages. Or, society might

encourage farmers near the existing wetland to allow

their fields (created by draining wetlands) to return to

being wetlands thereby providing insurance for biodi-

versity in the form of increased habitat. As before as-

sume that we’re starting from Point 1 on isoquant Curve

A so we would typically move (as in Figure 3) to Point 2

on Curve B.

The first aspect is that the policy imposes opportunity

costs on society today so it becomes even more costly in

terms of ecosystem services to maintain the current life-

D. MARTIN

Figure 4. Impacts of biodiversity protection policy.

style. In the two examples at hand, these opportunity

costs would be the costs of compensating the command

area farmers for the use of the irrigation water they sacri-

fice and the costs of compensating the local farmers for

the agricultural profit lost by converting their fields to

wetlands. These costs are represented by the shift from

Curve B to Curve C.

Second, because less natural capital is used as a result

of protecting biodiversity, the sustainability criterion

pivot downwards from SC 2 to SC 3. For the two exam-

ples here, the pivot from SC 2 to SC 3 would represent

either the benefits from stabilizing the wetlands with the

river’s natural flow or expanding the footprint of the

wetlands. Notice that both the extent of the initial pivot

from SC 1 to SC 2 and the extent second rotation from

SC 2 to SC 3 depend upon the valuation of ecological

factors in economic terms. How important are the spe-

cific lost biodiversity components today and how impor-

tant will they be in the future (SC 1 to SC 2) as well as

how important are the protected biodiversity components

today and how impor tant will they be in the future (SC 2

to SC 3)? This possibility of a tradeoff between the lost

biodiversity and th e protected biodiv ersity is discussed in

Section 5 belo w.

It is at this point that the debate about strong versus

weak sustainability becomes relevant. As used here, the

strong sustainability criterion pivots only to the extent

that such stabilization can be considered a return to a

previously existing natural state (in comparison to the

water being directed to the wetland with man-made en-

gineering structures) or the flooded agricultural fields

used to be part of the original wetland ecosystem (in con-

trast to being man-made wetland mitigation elements).

The more “man-made” these elements are, the less the

sustainability criterion pivots.

Finally, society would shift from Point 2 to Point 3

because the policy would be both costly to the present

(require more ecosystem services to maintain the current

lifestyle) and save more ecosystem services for the future.

In these cases, Point 3 is further out the horizontal axis

because the crops lost from either the command area far-

mers or the farmers near the wetlands are likely cheaper

for society to produce than the alternative crop sources

(assuming an efficient agricultural market) so more eco-

system services than previously used will h ave to be em-

ployed to produce those altern ative crops. But, Point 3 is

further up the vertical axis because the biodiversity pro-

tected by these policies would be available to provide

services for future generations.

If society would make lifestyle or institu tional changes

the locations of Curve C and/or Point 3 could improve. If

pricing irrigation water is not a feasible policy in this

region at this time, one set of such institutional changes

might be to use the existing agricultu ral extension agents

and general education programs more effectively to assist

the command area farmers to adapt to the loss of irriga-

tion water by changing their cropping patterns and to

in-crease their families’ potentials to earn off-farm in-

comes. In the case of paying farmers to return their fields

to wetlands, rather than depleting existing governmental

revenues to pay the farmers the government could create

fee-based wildlife viewing opportunities that would fund

both those opportunities and a compensation poo l for the

farmers.

5. Concluding Comments

Now we can see how the answer to the macroeconomic

question: how big of an ark should Noah build? The goal

is to move society to (or beyond) the sustainability crite-

rion by protecting biodiversity, so in Figure 4 Point 3

would be lying on or be to the left of the sustainability

criterion SC 3. First of all, is that outcome possible? Yes,

one could easily visualize that the outcomes in Figure 4

through some combinations of the three policy aspects

were discussed in the preceding section.

First of all, to raise Point 3 high enough to reach or

breach SC 3, society would hav e to impose large enough

opportunity costs upon itself so that Curve C would rise

to meet the sustainability criterion. Because these oppor-

tunity costs fundamentally take the form of not depleting

biodiversity, there are benefits in the other two policy

aspects.

Second, by depleting less biodiversity the sustainabi-

lity criterion SC 3 will pivot closer to the starting point of

SC 1. As noted in Section 4, it might be possible for so-

ciety to pick and choose which components of biodiver-

sity to save and not to save thereby affecting how far SC

3 pivots down from SC 2. Weitzman [5] provided the

foundation for those choices by providing Noah with a

model for boarding the species with the largest benefit

per dollar spent. That microeconomic model (and the

subsequent elaboration of it by many others) links to this

D. MARTIN 43

model within the context of providing the means for so-

ciety to select the policies that shift Curve C up the least

for a given pivot down of SC 3 (or a maximum pivot

down of SC 3 for a given shift up of Curve C).

The third aspect of biodiversity pr otection policy is th e

shift of Point 3 to be to the righ t of Point 2 (the opportu-

nity cost to the p r esen t) and to b e high er than Po in t 3 (the

benefits to the future). So, in this macroeconomic context

Noah would want to choose the species so that the net

outcome would be as nearly a vertical rise from Point 2

to Point 3 as possible. Weitzman’s [5] microeconomic

framework would facilitate that analysis as it included

genetic distinctiveness as one way to measure each spe-

cies’ option value for the future.

So, Daly’s [7] Plimsoll line-based critique about mi-

croeconomists ignoring macroeconomics not only reso-

nates metaphorically with the Noah’s Ark problem, it

also resonates with the directions this model provides to

Noah in building his ark. This macroeconomic model is

incapable in and of itself in answering the question, how

big should Noah’s ark be? As demonstrated in the pre-

ceding two paragraphs, Noah needs complementary mi-

croeconomic analyses to select the optimal policies. At

the same time, as Noah chooses his policies (boards a

species) efficiently he can ascertain if he needs more (if

the ark should be larger). Rather than stopping biodiver-

sity protection when an insufficient [4] budget constraint

is reached, Noah should continue to protect species until

Point 3 on Curve C reaches or breaches the sustainability

criterion SC 3. The macroeconomic analysis and the mi-

croeconomic analysis must go hand-in-glove.

Of course, this model leaves open the possibility that

society could adjust its lifestyle and institutions, which

could shift the frontier inwards and, also, move society to

a point closer to the sustainability criterion. As noted in

the last paragraph of Section 4, such changes might allow

society to move even closer to sustain ability than merely

preserving biodiversity alone. Again, microeconomic ana-

lysis can suggest efficient social changes and the macro-

economic analysis would allow Noah to see the implica-

tions for whether he needs to continue building a larger

ark. The macroeconomics points to the value of the mi-

croeconomics and the microeconomics requires the ma-

croeconomics. Daly’s prescient analysis is crucial to

Noah whether he starts from Weitzman’s [5] microeco-

nomic model or from the macroeconomic model devel-

oped here.

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