Presenter: Boris Vallee, INSEAD

Title: Can Environmental Markets Solve the Biodiversity Crisis?

Abstract: We examine whether environmental markets -- designed to achieve environmental goals in a flexible and economically-efficient manner -- are effective at protecting biodiversity. We first develop a parsimonious model that uncovers how markets for quotas foster private economies of scale, which can however be associated with social diseconomies of scale. We test this central prediction in the context of commercial fishing, one of the main source of biodiversity depletion. We leverage stable national fishing quota shares in the Northern Atlantic Fishery combined with the staggered introduction of national markets for these quotas by three European countries as a source of exogenous variation in the exposure of fish populations to markets.  We find that the adoption of environmental markets results in an overall decrease in both fish populations and annual fish landings. These effects are especially pronounced for species that are less commercially valuable, and more exposed to large scale extraction techniques. Environmental markets reshape the production function for the main natural resource by concentrating production among agents targeting this resource with large-scale assets, thereby exacerbating negative externalities on other parts of the ecosystem.

Host: Anil Kumar

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