Behind the logic of Hotelling’s argument with respect to the efficient use of resources over time there are many assumptions about the characteristics of natural capital and human-produced capital, future technological developments, the limits of people’s ability to comprehend social and ecological complexities with respect to how the future will unfold, and the appropriateness of current peoples exposing future peoples to the risks of not having biological diversity they might later find of value. These complications have led economists to argue, given the irreversibility of biodiversity loss^[1], that it is appropriate to some extent to maintain biological diversity as an option even though narrow economic reasoning suggests otherwise. Better-safe-than-sorry reasoning has led to the introduction of the concepts of option value, an upward adjustment of price to help assure the conservation of the resource^[2]. The quantity analogue to option value is a safe minimum standard, the setting of a lower limit on the quantity of a resource that must be maintained^[3].

Notes

1. ^Fisher, Anthony C., and Michael Hanemann. 1985. Endangered species: The economics of irreversible damage. In D. O. Hall, N. Myers, and N. S. Margaris (eds.), Economics of ecosystem management. Dordrecht: W. Junk Publishers.
2. ^Bishop, Richard C. 1978. Endangered species and uncertainty: The economics of a safe minimum standard. American Journal of Agricultural Economics 60:10–18.
3. ^Wantrup, Siegfried Ciriacy von. 1952. Resource conservation: Economics and politics. Berkeley, CA: Agricultural Experiment Station, University of California.

This Informational Box is an excerpt from An Introduction to Ecological Economics by Robert Costanza, John H Cumberland, Herman Daly, Robert Goodland, Richard B Norgaard. ISBN: 1884015727