Biodiversity, water and natural resource management

Market Creation for Biodiversity


Creation of markets refers to "the removal of barriers to trade and the assignment of well-defined property rights to create markets where environmental goods and services with privately-appropriate values can be traded to realise their full potential values. Generates incentives for the sustainable use of resources."


The creation of markets through the removal of barriers to trading and the assignment of well-defined and stable property rights is based on the premise that rational holders of these property rights will maximise the value of their resources over time. The underlying reasoning is that if biodiversity resources were thus privatised, their conservation and sustainable use would be better assured than under open access regimes where users often resort to short-term exploitation on a first-come, first-served basis.


This reasoning holds well for biodiversity resources and associated ecosystem services that contain private market value such as commercially valuable fish-stocks, the tradable meat, skins or other attributes of certain animals, or other biodiversity resources such as commercially valuable timber and non-timber forest products. As a result, the assignment of well-defined property rights has been extensively employed in connection with the management of commercial fish stocks in the form of individual transferable quotas, as well as private ownership of forested lands. Perhaps the largest drawback of the assignment of property rights as an incentive measure for the conservation and the sustainable use of biodiversity, whether to individuals or groups, relates to the fact that the incentive for the owners to sustainably manage their resources extends only to the privately appropriable elements of biodiversity. Existence values of species that are not commercially valuable and the surrounding ecosystem will not be taken into account without further regulations or other incentive measures.


But the maximisation of net present value from private activities can sometimes have positive spillover effects as well, albeit only for those elements of sustainable development whose value is privately appropriate or which are intrinsically linked to such elements. For example, private income from forested areas is often maximised through the long-term maintenance of the forest for ongoing timber extraction, which also leads to the positive externality of realising the forest´s existence value.