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Cost-effective conservation when eco-entrepreneurs have market power

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  • FERRARO, PAUL J.
  • SIMPSON, R. DAVID

Abstract

International conservation investments are often made in the form of subsidies to purportedly eco-friendly enterprises rather than as payments conditional on habitat protection. Previous research demonstrated that direct payments for habitat protection are more cost effective than indirect subsidies for the acquisition of com-plementary inputs used in eco-friendly enterprises. In contrast to this earlier research, we assume in this paper that an ‘eco-entrepreneur’ may have market power. Market power is shown to compound the advantage of direct payments. Through a simple numerical example, we show that subsidies intended to achieve habitat conservation by encouraging the acquisition of complementary inputs can be spectacularly inefficient. In some cases it would be cheaper simply to buy the land outright. In other plausible cases, the indirect subsidy approach would simply be unable to achieve habitat conservation objectives no matter how much funding were available.

Suggested Citation

  • Ferraro, Paul J. & Simpson, R. David, 2005. "Cost-effective conservation when eco-entrepreneurs have market power," Environment and Development Economics, Cambridge University Press, vol. 10(5), pages 651-663, October.
    • Handle: RePEc:cup:endeec:v:10:y:2005:i:05:p:651-663_00
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    Cited by:

    1. Paul Ferraro & Toshihiro Uchida & Jon Conrad, 2005. "Price Premiums for Eco-friendly Commodities: Are ‘Green’ Markets the Best Way to Protect Endangered Ecosystems?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(3), pages 419-438, November.

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