Who pays and who should pay for the uncertain conservation cost in biodiversity banking programs: evidence from a laboratory experiment

A major issue regarding biodiversity offset schemes is uncertainty about conservation and its costs. Although the demand for market expansions for biodiversity banking has increased in the past few decades, they may increase the degree of uncertainty regarding the completion of offsets. Therefore, stipulating the rights and responsibilities of stakeholders about the implementation of offsets is important. However, researchers have overlooked the behavioral aspects of market participants regarding responsibility and uncertainty. This study experimentally investigates the effect of uncertainty and market structure change on credit trading behavior in biodiversity banking. First, we verify that uncertainty regarding additional conservation costs provides significant disincentives for bankers to engage in trading when they are directly responsible for the costs, leading to the over-reduction of transactions. Since developers share the payment for the additional costs through the increase in credit prices, it is important to determine the way of sharing the responsibility for the costs between market participants and the public/society. Second, the provision of insurance to alleviate the uncertainty for bankers may not influence efficiency. Therefore, it may be reasonable for the public sector to incorporate insurance schemes into biodiversity banking programs. Third, increases in the number of bankers and developers improve efficiency, and this lowers the possibility of over-reduction of transactions. Therefore, when market expansions increase degrees of uncertainty, responsibility sharing schemes should be linked and revised according to the expansions.