Stay by thy neighbor? Social organization determines the efficiency of biodiversity markets with spatial incentives

This paper has been published in Ecological Complexity, 2010, 7, 91-99, doi:10.1016/j.ecocom.2009.07.001 Stay by thy neighbor? Social organization determines the efficiency of biodiversity markets with spatial incentives Florian Hartiga,∗, Martin Drechslera aUFZ - Helmholtz Centre for Environmental Research, Department of Ecological Modelling, Permoserstr. 15, 04318 Leipzig, Germany Abstract Market-based conservation instruments, such as payments, auctions or tradable permits, are environmental policies that create financial incentives for landowners to engage in voluntary conservation on their land. But what if ecological processes operate across property boundaries and land use decisions on one property influence ecosystem functions on neighboring sites? This paper examines how to account for such spatial externalities when designing market-based conservation instruments. We use an agent-based model to analyze different spatial metrics and their implications on land use decisions in a dynamic cost environment. The model contains a number of alternative submodels which differ in incentive design and social interactions of agents, the latter including coordinating as well as cooperating behavior of agents. We find that incentive design and social interactions have a strong influence on the spatial allocation and the costs of the conservation market. Keywords: land use, spatial externalities, spatial incentives, market-based instruments, biodiversity conservation, agent-based models PACS: 87.23.Ge, 89.60.Fe, 89.65.-s, 89.65.Gh 1. Introduction What is the value of nature? Markets for biodiversity conservation are based on the possibility of rating conser- vation services (e.g. the provision of an acre of rainforest) in terms of their contribution to conservation goals. A problem that arises when deciding on rating systems is that typical ecological processes operate on a much larger scale than that of typical landowner properties. Therefore, local land use decisions are likely to affect the ecological value of neighboring land. This paper deals with the prob- lem of incorporating such spatial interactions into market- based conservation instruments. Market-based instruments have become increasingly pop- ular in recent years (Jack et al., 2008), however, they are still a relative new tool for conservation policy. Tradition- ally, conservation was dominated by regulation and plan- ning approaches which emerged as a response to problems associated with the change and intensification of land use during the last century. Of particular importance for the effectiveness of top-down approaches such as regulations and planning is the inclusion of both the monetary costs ∗Corresponding author, Tel: +49-341-235-1716, Fax: +49-341- 235-1473, http://www.ufz.de/index.php?de=10623 Email addresses: florian.hartig@ufz.de (Florian Hartig), martin.drechsler@ufz.de (Martin Drechsler) and the ecological benefits of conservation measures (Faith and Walker, 1996; Ando et al., 1998; Margules and Pressey, 2000). This insight points to a practical problem of plan- ning approaches: local costs are difficult or expensive to estimate, and it is seldom in the interest of landowners to report them honestly. Moreover, costs may change over time. In these cases, market instruments provide an al- ternative to planning approaches because they are able to efficiently allocate conservation efforts to the spatial distri- bution of conservation costs, even when cost information is only available to landowners and not to the regulating authorities (information asymmetry). The common principle of market-based instruments is to introduce a metric that rates the value of conservation measures in terms of their contribution to conservation goals. This metric translates conservation measures into one currency (commodification) and thereby makes con- servation comparable and tradable based on this currency (Salzman and Ruhl, 2000; Salzman, 2005). In practice, different names are used for this currency. We will use the term "credits" throughout this paper, and say that the metric measures the amount of conservation provided by a site in credits. Demand for credits may be created by different mechanisms, e.g. payments (Wunder, 2007; Drechsler et al., 2007; Engel et al., 2008), auctions (Latacz- Lohmann and Van der Hamsvoort, 1998) or biodiversity offset schemes (Panayotou, 1994; Chomitz, 2004). This Preprint submitted to Ecological Complexity October 24, 2018 arXiv:0808.0111v2 [physics.soc-ph] 3 Sep 2010 demand for credits, together with the metric to measure them, creates an incentive for conservation. In a sense, we may view the process of trading credits as a policy-based site selection algorithm (Faith et al., 2003): competition among suppliers automatically extracts the sites that can provide conservation measures at the lowest costs. Yet, while markets may help to solve the problem of cost information asymmetry between landowners and regula- tors, the definition of an ac

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