Economics of Evironmental Conservation,
Second Edition
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Economics of
Environmental
Conservation, Second
Edition
Clement A. Tisdell
Professor of Economics, School of Economics, The University
of Queensland, Australia
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© Clement A. Tisdell 2005
All rights reserved. No part of this publication may be reproduced, stored in a
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mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.
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UK
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Massachusetts 01060
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A catalogue record for this book

3. Markets and government intervention in environmental
conservation 52
3.1 Introduction – choices about resource use and
conservation 52
3.2 Market efficiency and externalities 56
3.3 Government policies ‘to correct’ for externalities 65
v
3.4 Public or collective good characteristics associated
with the conservation of nature 70
3.5 Option demands, transaction costs, more on existence
values, bequest, irreversibility and uncertainty 73
3.6 Discount rates as grounds for government intervention 75
3.7 Monopolies and conservation 76
3.8 Common-property and intervention 78
3.9 Failure of political and administrative mechanisms in
relation to conservation 79
3.10 Concluding comment 81
4. Environmental conservation in developing countries 84
4.1 Introduction 84
4.2 Basic conservation problems in the Third World: origin 85
4.3 Population growth and income aspirations 86
4.4 Expansion of the market system 88
4.5 New technology 89
4.6 Problems illustrated by some cases 90
4.7 High effective rates of discount 93
4.8 Difficulties in enforcing conservation measures and
questions of social structure 94
4.9 Policies for influencing and improving conservation
practices in the Third World 95
4.10 Provision of information and education 96

6.5 Ranching and farming as means to overcome open-
access problems and conserve species 146
6.6 Concluding comment 150
7. Economics of conserving natural areas and valuation techniques 153
7.1 Introduction: nature and availability of natural areas 153
7.2 Benefits and uses of natural protected areas 155
7.3 An overview of approaches to estimating the
economic value of non-marketed commodities 156
7.4 Travel cost method of estimating the value of a
natural area 158
7.5 Contingent valuation of natural areas 163
7.6 Hedonic price valuation of natural areas 167
7.7 Some additional economic valuation techniques 169
7.8 Using total economic values for social choices about
resource use 169
7.9 Back to some fundamentals of economic valuation 171
7.10 Government versus non-government provision of
natural areas 173
7.11 Concluding comments 175
8. Forestry, trees and conservation 179
8.1 Introduction: forest cover and uses 179
8.2 Commercial forestry for timber production 181
8.3 Multiple purpose management of forests 186
8.4 Forests and trees in less developed countries 188
8.5 Economic policies, pollution, forests and trees 192
8.6 Forest plantations versus natural forests: a discussion 195
8.7 Concluding remarks 196
Contents vii
9. Agriculture and the environment 199
9.1 Introduction 199

11. Sustainable development and conservation 243
11.1 Background 243
11.2 Sustaining intergenerational economic welfare 244
11.3 Capital, natural resource conversion and human
welfare: further considerations 248
11.4 Survival of the human species for as long as possible 251
11.5 Issues raised by the views of Daly and Georgescu-
Roegen about sustainability 253
viii Economics of environmental conservation
11.6 Resilience of production and economic systems and
stationarity of their attributes 256
11.7 Cost–benefit analysis and sustainability 258
11.8 Sustainability of community 260
11.9 Sustaining biodiversity 261
11.10 Concluding remarks 263
12. Population, economic growth, globalisation and conservation: a
concluding perspective 267
12.1 Introduction 267
12.2 Global population levels: characteristics and
projections 268
12.3 Environmental consequences of population growth
and economic demands 269
12.4 Environmental Kuznets curves: do they provide
grounds for environmental optimism? 270
12.5 Is economic globalisation favourable or unfavourable
to environmental conservation? 273
12.6 Concluding observations 274
Index 277
Contents ix
Figures

vegetation cover and a social viewpoint is adopted 64
3.7 The optimal level of conservation of the population of a
species considered as a pure public good on the basis of its
existence value 71
3.8 In the above case, the higher is the rate of interest used for
x
discounting the more likely development is to be preferred to
conservation of a natural resource 76
3.9 Monopoly in this case has no conservation advantages and
results in a deadweight social loss 77
3.10 Illustration of how majority voting may lead to insufficient
or too much conservation judged by the Kaldor-Hicks
economic efficiency test 80
4.1 Conservation of living natural resources in a developing
country to some extent provides a global public good.
Hence, an optimal amount of conservation may not occur in
developing countries if LDCs follow their own self-interest 103
5.1 Species of wildlife sometimes provide a mixed good. In such
cases, private harvesting of species to supply private goods is
unlikely to maximise economic welfare because the social
marginal cost of harvesting diverges from the private
marginal cost of harvesting the species 114
5.2 The mere fact that the private cost of harvesting a species
diverges from the social cost of harvesting it does not imply
that its level of harvest is always socially inappropriate or
suboptimal 115
5.3 The social marginal cost of harvesting a species may be so
high that no harvesting is socially optimal. In such cases, all
private harvesting is inappropriate 116
5.4 A wildlife species may be regarded as a pest by some social

there is open-access, rises, the social economic costs of its
‘excess’ harvesting increases. In addition, the stock of the
resource declines and as shown by Figures 6.2 and 6.3, the
resource faces increasing risk of extinction as a result of
overharvesting 144
6.7 While farming may favour the conservation of wild stock of a
species, it is not bound to do so. This is because it can increase
demand for the use of the species and it may cause the supply
schedule of supplies from the wild of the harvested species to
move upward and to the left (note that this shift in the
supply schedule is not illustrated) 148
6.8 Farming has altered the global genetic stock. It has resulted
in losses as well as additions to the stock 150
7.1 Zoning of areas depending upon travel distance to an
outdoor attraction A 159
7.2 Relative frequency of visits (demand for visits per capita) as a
function of the (travel) cost per visit 160
7.3 Demand curve for visits to an outdoor area. Consumers’
surplus in the absence of an entry fee is shown by the
hatched area 161
7.4 Evaluation of alternative land-use taking account of total
economic values 170
7.5 Marginal evaluation curves of conservationists and developers
in relation to the percentage of natural area developed 172
7.6 Under provision of public goods (protected areas in this case)
leaves scope for their provision by non-governmental
organisations 174
8.1 Quantity of timber production available from a forest as a
function of its age 182
8.2 Determining the optimal growing period or harvest cycle for

to a net loss in social economic welfare 221
10.1 A case in which the number of tourist visits to an area is
influenced by aversion to crowding 227
10.2 As the cost of visiting a tourist area declines, consumers’
(tourists’) surplus may not increase but decrease. This can
occur if there is aversion to crowding because lower costs of
a visit will usually bring more visitors 228
10.3 Consequences for tourism demand of deterioration of a
tourist asset due to tourist visits 230
10.4 Typical tourism area cycle according to Butler (1980) 232
10.5 Tourism area cycle not caused by environmental damage due
to tourist loads 233
10.6 Illustrations of loss caused to the tourist industry and to
tourists by pollution 234
Figures xiii
10.7 A case in which pollution from sources outside the tourism
industry imposes external economic costs on tourism in terms
of losses in producers’ and consumers’ surpluses 235
10.8 A case in which defensive environmental expenditures (on pest
control) are economic because of their impact in increasing
tourism 236
10.9 Total economic value: economic conflict and non-conflict
zones between benefits from tourism and other economic
values 237
11.1 Dependence of human welfare on the ratio of man-made to
natural capital and implications for conversion and use of
natural capital 250
11.2 Hypothetical optimal path for maximising human welfare of
the ratio of man-made capital to natural capital 251
11.3 Some alternative views of the relationship between population

the conservation of nature. Therefore, I was delighted when Edward Elgar
told me that he would be interested in publishing a second edition of
Economics of Environmental Conservation and suggested a practical method
for producing the new manuscript. The first edition of the Economics of
Environmental Conservation was published in 1991 by Elsevier Science
Publishers. Even though fundamental environmental issues have not
changed since then, there have been many developments in ecological eco-
nomics and in policies affecting biological conservation and environmental
management.
Every chapter in the first edition has been revised, updated and in most
cases, slightly lengthened to accommodate new concepts and issues that
have evolved since the completion of the previous edition. For example,
coverage now includes a more comprehensive and integrated overview of
property rights as an element in conservation; more attention to the total
economic value concept; consideration of the implications of environmen-
tal Kuznets curves (the term had not been introduced in 1991); recently
highlighted limitations of economic techniques for environmental valua-
tion are included as well as some coverage of new valuation techniques,
such as choice modelling; there is more discussion of relationships between
tourism, conservation and economic environmental valuation; and in view
of growing globalisation, influences of globalisation on environmental
conservation and sustainability are explored. The multidisciplinary nature
of the work has been retained and presentation of ideas has been kept as
simple as possible in order to maintain accessibility.
The importance of studying relationships between economics and our eco-
logical and environmental circumstances has increased since the first edition
of this book was published. The volume of global production and the level
of the world’s population have risen considerably and have placed growing
demands on the Earth’s natural and environmental resources. This upward
trend is likely to continue for a few decades yet. Humankind is exerting more

wants to chat.
Clement A. Tisdell,
Brisbane, Australia
Preface to the second edition xvii
Preface to the first edition
Study of the relationship between economic systems and ecological and
environmental ones is important for managing and conserving the
Biosphere on which all life, including that of humans, ultimately depends.
Fortunately, the importance of combining economic, ecological and envi-
ronmental studies is now increasingly recognised in policy circles world-
wide as, for example, is evident from the report of the United Nations’
World Commission on Environment and Development, Our Common
Future, Oxford University Press, New York, 1987, and from subsequent
international fora dealing with these matters. One might expect these rela-
tionships to be a central focus at the Second United Nations Conference on
the Environment and Development to be held in Rio de Janeiro in 1992.
But the more relationships between economics, ecology and the environ-
ment are studied, the more acutely one becomes aware of the fact that our
knowledge is imperfect, that many gaps remain to be filled and that we need
to convince more people to join in exploration and discovery in this area
because of the magnitude and importance of the task.
Of course, recognition is only the first step in dealing practically with an
issue or problem. The second step is to study, observe and analyse it and
develop relevant principles and from these, formulate an appropriate plan
of action. The final step, from a practical point of view, is to put the plan of
action or strategy into effect. In large, complex societies, such as modern
ones, in which individuals are highly specialised in their social functions and
activities, this requires co-operation or co-ordination between all groups in
society, and given the global nature of many environmental and ecological
effects of economic activity, it calls for international co-operation.

to Dr John Gowdy of Rensselaer Polytechnic Institute, Troy, New York
State for regularly urging me to complete the manuscript. Nicholas
Polunin has encouraged my interest in environmental conservation in
many ways and I value the support which has given me through his
journal, Environmental Conservation.I am grateful to Brian Wilson, Vice-
Chancellor of the University of Queensland, for thoughtfully supplying
me on his return from Helsinki with a copy of the WIDER paper men-
tioned in Chapter 12. I also benefited greatly from the comments of anon-
ymous reviewers (appointed by the publishers) on my introductory
chapters. It has also been valuable to be able to ‘try out’ some of the
material used in this book in lectures to environmental economics students
at the Universities of Newcastle and Queensland, as well as elsewhere.
Some of the material in Chapter 10, for example, was covered in lectures
to tourism management students at the Nankai University, China, and
MBA students at Queensland University.
While some of the research for this book was completed at the University
of Newcastle, New South Wales, with the financial assistance of a small
grant under the Australian Research Grants Scheme, practically the whole
of the manuscript was completed at the University of Queensland. I am
grateful to both institutions for their support. I wish to thank Jenny
Hargrave from the University of Newcastle for typing the first draft of the
initial chapters, and Deborah Ford of the University of Queensland for
typing the entire final manuscript, in the format required by Elsevier
Preface to the first edition xix
Science Publishers. I would like to acknowledge the kind and efficient assis-
tance of the staff of Elsevier in Amsterdam. Finally, but not least, I thank
my wife Mariel, and children, Anne-Marie and Christopher, for being sup-
portive once again.
Clement A. Tisdell,
Brisbane, Australia

biologically based activities such as wildlife conservation and use, pest
control, agriculture, forestry, fisheries and living marine resources, the
preservation and use of natural areas such as national parks and tourism
based on natural resources. In turn these activities have further environ-
mental consequences for humankind. For example, forests and tree cover
1
influence water quality, soil erosion and air quality. Indeed, economics is
relevant to the whole biosphere that is ‘The integrated living and life-
supporting system comprising the peripheral envelope of Planet Earth
together with its surrounding atmosphere so far down, and up, as any form
of life exists naturally’ (Friedman, 1985).
1.2 WELFARE ECONOMICS, ENVIRONMENT
AND THE BIOSPHERE
Economics is the science which studies the allocation of scarce resources in
society as a means to the satisfaction of human wants or desires. In order
to deal with the essential problem of economics, one has to take account of
available resources and methods of production of commodities, their
exchange and the way in which income is distributed. Economics, as it has
evolved, is essentially an anthropocentric (human-centred) subject.
Nevertheless, this does not mean that economics can not be supportive of
the conservation of the environment and in particular the biosphere.
Framers of the World Conservation Strategy (IUCN-UNEP-WWF, 1980)
and the World Commission on Environment and Development (1987)
were correct in believing that economics can provide significant arguments
in favour of conservation of biological resources. Conservation of envir-
onmental and biological resources is frequently required as a means of
maximising human welfare (or at least, avoiding inferior welfare outcomes)
in a world of limited resource availability. Let us therefore broadly consider
the relevance of alternative types of welfare economics to biological
conservation.

without making another worse off. No matter what is the distribution of
property rights in society, the use of society’s resources including the bio-
sphere should be so organised (in the light of the production or transform-
ation possibilities open to humankind) that the welfare of no person can be
increased without reducing that of another person. Many neoclassical
economists argued that a system of perfect market competition would, with
a few minor exceptions, achieve this social ideal. However, as discussed in
later chapters, market mechanisms may fail significantly as means for
ensuring a Paretian optimal use of resources, especially of those resources
contained in the biosphere.
A rule closely related to Paretian optimality, is the notion of a Paretian
improvement. A Paretian improvement is said to occur when as a result of
a change in the use of resources some individuals are made better off
without anyone being made worse off. It is usually contended that any
change in resource-use which brings about a Paretian improvement is
socially desirable. In practice, however, few possible changes may have this
quality. It is more frequent for changes in resource-use to make some indi-
viduals worse off and others better off.For example, the acquisition of
private land for a natural park or restrictions on private land-use for envi-
ronmental reasons may damage the original landholders but benefit other
groups.
The notion of potential Paretian improvement (sometimes called the
Kaldor-Hicks criterion) was suggested as a means of dealing with this
problem. It suggests that if the gainers from a change in resource-use could
compensate the losers from it and remain better off than before the change,
the change should be regarded as an improvement. Note that actual
compensation need not be paid to the losers. If compensation is paid then
of course this criterion reduces to the Paretian criterion. The criterion of
Economics and the living environment 3
a potential Pareto improvement underlies much of social cost–benefit

‘man-made’ goods. There may therefore be a trade-off between the pro-
duction of environmental natural goods and man-made goods. The
production possibility frontier involving man-made goods and environ-
mental natural goods might be of the type indicated by curve ABCD in
Figure 1.1. This indicates that the provision of natural environmental
goods up to a level of x* is complementary to the production of man-
made goods. Such complementarity might come about for example,
because the retention of natural tree cover reduces flooding and erosion
and helps maintain agricultural output. Given all the techniques available,
the production possibility set might consist of the set bounded by
OABD. Some techniques of production may for instance be such that the
4 Economics of environmental conservation
combination at point J results. Given that both more natural environmen-
tal goods and more man-made goods are desired, J is an inferior economic
position. If welfare is to be maximised, society must adopt a pattern of
resource-use that results in its being on its production possibility frontier
in the efficiency segment BCD. Not only are combinations below the pro-
duction possibility frontier socially inferior but in view of the comple-
mentarily relationship so too are combinations on the segment AHB. In
both these cases it is possible to produce more of all the types of desired
goods by reorganising resource-use.
It seems that a complementary production relationship does exist up to
a point (a segment like AHB) between the production of man-made
goods and goods provided by the natural environment and this on its own
would provide an argument for conservation of biological resources.
However, in addition humans directly value many goods produced by the
natural environment. When this is taken into account, there is an addi-
tional economic reason to be concerned with the conservation and man-
agement of natural biological resources. Given the preference indicated
by the indifference or iso-welfare curves marked W

C
D
y**
W
3
W
2
W
2
W
1
W
1
W
3
Quantity of natural goods supplied by the environment
Quantity of man-made goods per year
Figure 1.1 Choice and trade-off between supply of man-made goods and
those provided by the natural environment