Scarcity, willingness to pay for species, and imperfect substitutability with market goods

Abstract

The impacts of biodiversity loss on human well-being depend on how much we value benefits from nature and the extent to which substitutes exist in the market for these benefits. The lack of markets for environmental goods and services, coupled with non-linearities and irreversibility in socio-environmental systems, present unique challenges for understanding the consequences of biodiversity loss. We use a rationed-good framework to explore how species scarcity impacts marginal WTP for species and its income elasticity. We note that marginal WTP need not be decreasing in species abundance and may even be increasing, particularly if the associated suite of benefits contributes to real income via reductions in defensive expenditures. Using a new dataset of species abundance and species-level WTP estimates, we test our predictions that species abundance will impact marginal WTP and its income elasticity. Our point estimates of the income elasticity of WTP (0.44 − 0.51) are stable across a range of model specifications. Under the assumption of homothetic preferences, this value suggests that the species in our dataset are generally weakly substitutable with market goods (σ = 1.96 − 2.27); however, we show that complementarity between species and market goods increases as the species’ level of threat increases: η = 1.135, σ = 0.881 for critically endangered species. The observed relationships cannot be captured by the functional forms for utility used in many models driving policymaking.