According to traditional economics theory, the market is a system through which prices are set according to how much a product costs to produce and how much consumers are willing to pay. However, in this scheme, ecosystem services are considered to be “externalities” and therefore have little or no effect on the market price of a product. This problem is exacerbated by the “public” nature of many ecosystem services (Turner et al 1994). History shows that relying on market forces to preserve biodiversity is ineffective – mainly because environmental destruction does not have an immediate economic effect (Gowdy & McDaniel 1998).
However, market based approaches can be developed which help overcome the environmental limitations of the traditional market economy. Market based incentives, such as auction contracts for conservation, have been used with some success in Australia over the last decade or so. One such program in Victoria was shown to have produced considerably more biodiversity than a fixed price scheme (Pascual & Perrings 2007). Read the rest of this entry »