Optimal Sampling Intensity in Biodiversity Prospecting and the Financing of Conservation

Biodiversity prospecting, or the investigation of biological samples for potential new pharmaceutical products or biotechnology, has drawn considerable attention as a source of revenues for governments concerned with the preservation of biodiversity. Recent agreements designed to extract some of the surplus associated with the marketing of successful products by firms have employed royalties on the revenues from these products. However, taxes on revenues will tend to decrease the number of species sampled and thereby decrease the potential benefits to society and source governments. Further, the latest (or forthcoming) products provide information to other firms which is not accounted for in private decisions, implying that private sampling choice will be suboptimal even in the absence of distorting royalties. Subsidization of sampling and testing costs, combined with lump sum taxes, are shown to achieve both optimal sampling intensity and effective surplus expropriation. Using pharmaceutical industry and biodiversity protection estimates as well as data from existing international agreements, the extent of such surplus extraction to cover habitat protection costs is assessed. ∗ The constructive comments of Ida Ferrara, Elie Appelbaum, Sam Bucovetsky and Charles Plourde, as well as seminar participants at Simon Fraser University, Dalhousie University, St. Francis Xavier University and York University, are greatly appreciated. Any errors or omissions remain the responsibility of the author.