Market failures and biodiversity externalities

The MA found that 60 percent of the ecosystem services evaluated had declined in the second half of the twentieth century (Millennium Ecosystem Assessment 2005). As Kinzig et al. have remarked, this should not have been at all surprising. The same 60 percent of services are unpriced in the market. We do not pay for them, and they generate no return to the landholders whose actions affect their supply. Since we get what we pay for, we should expect such services to be neglected (Kinzig et al. 2011). Indeed, this is only a problem if it imposes social costs we would prefer to avoid. The conclusion of the MA was that the physical changes it recorded were the socially undesirable consequences of the growth of markets for fuels, foods, and fibers. The external effects of market transactions, externalities for short, are the unintended or incidental consequences of the production or consumption of marketed goods and services. They may be positive or negative. The changes recorded by the MA would have been described by Crocker and Tschirhart as ecosystem externalities: market-driven actions that impact the wellbeing of either consumers or producers by altering the ecological functioning on which consumption or production depends, but where the welfare effects of those actions are ignored (Crocker and Tschirhart 1992). In what follows I refer to them as biodiversity externalities.

The drivers of the biodiversity loss recorded in the MA, and described in Chapter 2, define the most important of the biodiversity externalities. The expansion of land committed to agriculture or industry directly reduces habitat, and with it both species richness and abundance. The introduction of roads (and development along roads) leads to the fragmentation of habitat. While this may not immediately reduce species richness, the long-run effects are quite similar. The appropriation of water for human use in arid and semi-arid lands increases stress on other species, with direct effects on the abundance of those species. The accidental or deliberate introduction of invasive species through trade, transport, and travel frequently leads to the depletion of native species. Aside from these headline externalities, however, there are many more subtle stressors that also change biodiversity and the processes it supports.