Is there a Biodiversity Jackpot?

By Daniel K. Benjamin

Biodiversity prospecting is the search for new chemicals produced by wild organisms. Because these chemicals (such as aspirin, quinine, and cancer-fighting taxol) appear to be a potential bonanza for their discoverers, biodiversity prospecting in ecological "hot spots" in South America, Southeast Asia, and Africa has been widely touted as a means of both discovering new medicines and saving endangered species.

But an article by R. David Simpson, Roger A. Sedjo, and John W. Reid in the Journal of Political Economy, suggests otherwise.1

Indeed, it now appears that the good news and the bad news are one and the same: The expected value of a new species for pharmaceutical purposes is actually very low. This makes it unlikely that private firms will have much economic incentive to protect species. But this also means that the loss--measured in human illness or death--caused by the loss of a species is also likely to be small.

A new compound may be valuable as a pharmaceutical product, as a source of breeding stock or genetic information, or simply as a "lead," or promising molecule, that can be followed up in the laboratory. But until now, prospecting enthusiasts have ignored one key fact: Once a compound has been discovered in species A, its existence in species B is redundant, and thus of little or no additional value. When this simple fact is taken into account, the potential economic value of an incremental species drops dramatically.

In earlier research, Sedjo and Simpson had likened ownership of uncharted habitat to owning a bundle of lottery tickets.2 Each disease is a lottery, and a cure for that disease may be viewed as the winning number. Researchers and commentators implicitly have been assuming that every ticket (or species) with the winning number would receive the full lottery jackpot. In fact, as Simpson, Sedjo, and Reid now note, if there is more than one winning ticket (i.e., more than one species offering a cure for a given disease), the jackpot is not paid duplicatively to the owner of each; it is instead divided among the winning tickets. Thus, the forest or other habitat containing those "winning" species is much less valuable than previously believed.

Simpson, Sedjo, and Reid have assembled new empirical evidence that takes into account biologists' estimates of the number of species (worldwide and in key habitats), how many drugs are likely to be developed from them, and what each drug plausibly will be worth. Even under the most optimistic assumptions, they conclude that the economic value of saving one species is unlikely to be more than about $10,000. Even a slight departure from the "best case" assumption regarding the probability that a given species will yield useful discoveries drops the expected value of a species to less than $100. And a modest decline in the profitability of a drug can cause the expected pharmaceutical value of a species to fall to essentially zero.

The low potential economic value of an incremental species means that private firms will be unwilling to pay much to protect habitat for endangered species, even where biodiversity is at its greatest. Based on their evidence, the authors estimate that pharmaceutical companies would pay no more than $20 per hectare (2.47 acres) to protect the habitat of western Ecuador, which has the highest density of promising species. Similarly, the uplands of the western Amazonia likely have a biodiversity value for medical purposes of less than $5 per hectare, and prime regions in Asia and Africa only about $1 a hectare.

The point is not that species should be valued only for their pharmaceutical value, and these latest estimates may not be the last word even on this narrow issue. The point instead is twofold. Yes, high hopes that pharmaceutical firms will spend generously for species-preserving habitat are misplaced. But the flip side is that the expected loss in human lives and suffering due to the loss of a species is likely to be correspondingly small. Thus, arguments in favor of preserving biodiversity will have to rest on grounds other than its pharmaceutical or economic value.

NOTES
1. R. David Simpson, Roger A. Sedjo, and John W. Reid, Journal of Political Economy, February 1996, pp. 163-85.

2. See Roger A. Sedjo and R. David Simpson, "Property Rights Contracting and the Commercialization of Biodiversity," in Wildlife in the Marketplace, Terry L. Anderson and Peter J. Hill (eds.). Lanham, MD: Rowman & Littlefield, 1995, p. 170.


Daniel K. Benjamin is a PERC senior associate and professor of economics at Clemson University. His regular column, "Tangents-Where Research and Policy Meet," investigates policy implications of recent academic research. He can be reached at: wahoo@clemson.edu

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The effect of government policy changes on the private sector has been the unifying theme that ties together Daniel K. Benjamin's broad-scale research. He not only examines the outcomes of policy changes, but also the reasons behind the modifications.Taxes, unemployment, risk assessment, and drugs have been the focus of much of Benjamin's...
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